Computacenter Regulatory News (CCC)

14 Mar 2006 07:03

Computacenter PLC14 March 2006 COMPUTACENTER PLC Preliminary Results Announcement Computacenter plc, the European IT infrastructure services provider, todayannounces preliminary results for the twelve months ended 31 December 2005. Financial Highlights*:• Group revenues of £2.29 billion (2004: £2.41 billion)• Profit before tax of £34.0 million (2004: £67.9 million)• £27.0 million of the profit decline attributable to lower vendor rebates in the UK• Second half profit of £25.8 million (H1 2005 £8.2 million)• Earnings per share of 10.9p (2004: 25.9p)• Proposed final dividend of 5.0p per share, total dividend of 7.5p (2004: 7.5p)• Strong operating cash flow and balance sheet with net funds of £100.4 million at year-end (2004: £41.0 million after the adoption of IAS 32 and 39)• Proposed return of £75 million to shareholders in Q2 2006 * continuing operations Operational Highlights:• Major strategic repositioning programme underway in the UK business• UK annual services contract base growth of 4.6%• Encouraging growth in German services activities• Improved French performance in the second half, although significant challenges remain Ron Sandler, Chairman of Computacenter plc, commented: "There is no denying that 2005 was a difficult year for Computacenter, and thatthe financial performance of the Group was disappointing. But the year was notwithout its positive features. Significant steps were taken in the UK to createan organisation that is considerably better equipped to respond to thechallenges posed by the continuing commoditisation of IT. The long-runningdispute in Germany with GE was brought to a satisfactory resolution. And acrossthe Group, trading improved as the year progressed, and was particularly strongat the year-end. "Trading activity in the first two months of 2006 has been below the comparableperiod in 2005. However, in recent years, our sales have become increasinglyweighted towards the end of each quarter, such that trading in the early weeksof the quarter now provides a less reliable indicator of performance for theperiod as a whole. "Whilst much remains to be done to improve Computacenter's profitability, thereis a sense of optimism within the company that we are getting back on the righttrack." For further information, please contact:Computacenter plc.Mike Norris, Chief Executive 01707 631 601Tessa Freeman, Investor Relations 01707 631 514www.computacenter.com Tulchan Communications 020 7353 4200Tim Lynchwww.tulchangroup.com High resolution images are available for the media to view and download free ofcharge from www.vismedia.co.uk Chairman's Statement In 2005, Computacenter's revenues declined to £2.29 billion (2004: £2.41billion) and profit before tax fell 49.9% to £34.0 million (2004: £67.9million). Most of the profit decline is attributable to reduced vendor rebates.Some encouragement can be taken from the fact that following a particularlydifficult first half, the Group's performance improved considerably as the yearprogressed. Profit before tax increased in the second half to £25.8 million from£8.2 million in the first half, on revenues that were broadly unchanged. The balance sheet remained strong. Even with an increased requirement forworking capital due to an upsurge in trading at the year-end, the Group endedthe year with net funds of £100.4 million (2004: £41.0 million after theadoption of IAS 32 and 39). The Group's cash resources exceed its requirementsand the Board has decided to return £75 million to shareholders in the secondquarter of 2006, on the assumption that various tax matters can besatisfactorily resolved within this timeframe. The Board intends to returnfurther cash to shareholders in the years ahead, subject to retaining sufficientresources in the company to take advantage of opportunities to advance thestrategic repositioning of Computacenter through acquisition. The Board is pleased to recommend a final dividend of 5p per share, bringing thetotal dividend for 2005 to 7.5p (2004: 7.5p). It is the Board's intention tomaintain this dividend until earnings have risen sufficiently to bring the levelof cover to within the new target range of 2-2.5x, which is now consideredappropriate by the Board. The final dividend will be paid on 30 May 2006 toshareholders on the register as at 5 May 2006. Most of the profit decline is attributable to the Group's UK business, whereoperating profit fell to £32.1 million, from £63.8 million in the previous year.Reduced vendor rebates accounted for £27.0 million of this fall, and productmargins were under pressure throughout the year. Gross profit from the ProductDivision fell by £35.2 million compared to 2004. The performance of the ServicesDivision was more encouraging; although gross profit was broadly unchanged,revenues grew modestly and the contract base increased 4.6% to £177.1 million. Computacenter's product business faces considerable challenges, includingfalling prices, reducing margins and the impact of vendors selling commodityproducts direct to end users, particularly in the large corporate market. Inresponse, some major steps have been taken to address Computacenter's UKstrategic positioning. In my statement accompanying the Interim Results, I drewattention to these: • Re-engineering our product business to deliver lower cost account management and sales; • Building a sizeable presence in the medium-sized business segment; • Creating a specialist software business unit to increase our share of this market; • Broadening the depth and range of our technical services activities; • Capturing greater value from the superior scale of our engineering and maintenance activities, by sharing more resource across our customer base; • Seeking to accelerate the growth of our Managed Services business. Collectively, these strategic initiatives are intended to repositionComputacenter in its core markets and restore long-term earnings growth. Theirimplementation has required significant changes to our UK business model andorganisational structure, and management deserves considerable credit for itshandling of a complex and far-reaching reorganisation during the course of theyear. Much remains to be done to realise the benefits of the new strategy; inparticular, some key IT systems necessary to support the new organisation willonly be introduced through the course of 2006. Whilst it is too soon to commenton the impact of these initiatives, management is optimistic that the changeswill deliver the anticipated benefits, and the stronger second-half trading in2005 may be an early indicator of this. The challenges, however, should not beunderestimated. Difficult market conditions persisted in Germany, putting both product andservice margins under pressure throughout the year. Against a 5.7% decline inrevenues to £618.2 million (2004: £655.5 million), the operating profit inComputacenter Germany fell to £5.0 million (2004: £9.0 million). But, as in theUK, trading improved considerably as the year progressed; the operating profitof £6.5 million in the second half was a substantial improvement on thefirst-half loss of £1.5 million, and similar to the comparable period in theprevious year (2004: £6.5 million). This second-half improvement is attributableto both the usual seasonal factors in the market and the German managementbecoming more familiar with the new organisation structure introduced at thestart of the year. It also reflects some operational improvements to aparticularly problematical services contract. The long-standing problems at Computacenter France continued during 2005, withlosses deepening to £9.3 million (2004: £6.7 million) on revenues of £295.8million (2004: £300.4 million). Performance was particularly poor in the firsthalf of the year, when purchases from a major customer were temporarilycurtailed. A new management team has been in place for over a year andComputacenter France is now being run on a much more disciplined basis; inparticular, the quality of financial control in the business has beenconsiderably enhanced. Efforts to align better the cost base of the businesswith its revenue potential will continue in the future. In November 2005, it was announced that an independent committee of the Boardhad been formed to consider a potential offer for the Company from a group ledby Peter Ogden, a major shareholder and Non Executive Director. No formal offerwas made to the committee and, following the stronger trading performance inDecember, the approach was withdrawn. The members of this group intend toparticipate equally with other shareholders in the return of cash planned forlater this year. Trading activity in the first two months of 2006 has been below the comparableperiod in 2005. However, in recent years, our sales have become increasinglyweighted towards the end of each quarter, such that trading in the early weeksof the quarter now provides a less reliable indicator of performance for theperiod as a whole. There is no denying that 2005 was a difficult year for Computacenter, and thatthe financial performance of the Group was disappointing. But the year was notwithout its positive features. Significant steps were taken in the UK to createan organisation that is considerably better equipped to respond to thechallenges posed by the continuing commoditisation of IT. The long-runningdispute in Germany with GE was brought to a satisfactory resolution, andmanagement is now free of this particular distraction. And across the Group,trading improved as the year progressed, and was particularly strong at theyear-end. Whilst much remains to be done to improve Computacenter's profitability, thereis a sense of optimism within the company that we are getting back on the righttrack. My appreciation and thanks go to the employees of Computacenter for theiroutstanding commitment, energy and hard work.Review of Operations UK In the face of continuing challenges, particularly in our product business, wecompleted a fundamental review and realignment of our UK strategy in the firsthalf of 2005. This, in turn, led to a major reorganisation involving thecreation of separate Product and Services Divisions. This strategic programme required considerable management time and attentionduring 2005. However, by the year-end, the benefits arising from these changeswere already beginning to become apparent. In particular, the separation of ourproduct and services activities has given both areas sharper focus and added newimpetus to our efforts to restore top-line growth, whilst delivering operationalimprovements and cost reduction. At the heart of the organisational change has been the transformation of our UKoperations into seven discrete and highly empowered business units, whichoperate largely with a shared sales force. This new structure provides twoprincipal benefits: a more focused and bottom-line driven management ofComputacenter's core activities, and a sales force that is now freed of itsprevious responsibilities for the operational management of services deliveryand therefore better able to concentrate on expanding the new business pipeline. Cost control remains a priority, with overall headcount in the UK falling 3.5%from 4,754 to 4,589 over the course of the year. Of these reductions, 146 werein indirect SG&A (sales, general and administration) expense categories. Services Division A key focus of our services business during 2005 has been standardisation inorder to reduce operational costs and improve customer service. This has allowedus to reduce the provision of dedicated on-site resources in favour of acentrally provided, shared-resource approach for the delivery of ourengineering, help desk and systems management offerings. In particular, we created a single engineering resource from over 2,000 staffpreviously dedicated to different functions and contracts. This makes it easierto assign the most appropriate specialist resource where it is needed, as wellas helping to achieve higher levels of utilisation. Our success in loweringoperating costs and building a more streamlined service delivery model hashelped improve the competitiveness of our offerings. The total services revenue in 2005 was £267.2 million and our annual contractedbase increased 4.6% to £177.1 million. The Services Division comprises three business units: Managed Services, SupportServices and Technology Solutions. Managed Services Our Managed Services business unit is contractually responsible for themanagement of our customers' IT infrastructures, with the goals of reducingtheir costs and improving their user service levels. To accelerate the growth in our Managed Services business a number ofinitiatives were begun in 2005 aimed at targeting our offerings moreeffectively, reducing operational costs and delivering a more efficient service.Central to these initiatives is the leverage of common processes and centralresources, shared across the whole Services Division. Considerable work has been done to define more clearly our core Managed Servicespropositions and match our offerings more closely to customers' requirements. Inparticular, we now have offerings specifically designed to meet a growing demandfor cost-effective managed support of datacentres, and for ensuring 24x7 ITsystems availability. Significant new Managed Services business in 2005 included the award of afive-year global contract with a major investment bank, a major contract withBritish American Tobacco, and the renewal of our contract with AEGON UK for afurther five years. A major focus in 2006 will be the negotiation of the renewalof our flagship Managed Services contract with BT which, unless the renewal isaccelerated, comes to the end of its term in March 2007. Support Services Our Support Services business unit includes services such as installations andmaintenance of desktops, datacentres and networks, user help-desk support, anddisaster recovery. Support Services activities differ from Managed Services inthat they involve more day-to-day customer instruction, as opposed to acontractually defined service level agreement. We saw 5.1% growth in engineering and maintenance revenues compared to 2004.Support Services operating costs fell as a result of a 10% reduction inlogistics costs, record levels of engineer utilisation, better supply chainmanagement of spare engineering parts, and leverage of our European scale inpurchasing. Technology Solutions The Technology Solutions business unit is responsible for professional services,including integration and project management services, and the provision ofexpert advice across a range of platforms and technologies. Overall Technology Solutions revenues were broadly unchanged. However revenuesfrom cabling projects grew strongly and we saw a 14% increase by volume inenterprise hardware related projects. We are now seeing a healthy pipeline ofTechnology Solutions projects for 2006. In 2005 we sought to broaden and deepen our Technology Solutions portfolio,redeploying our consulting skills in new growth areas and particularly targetingthe more business-critical areas of IT infrastructure. This has led to theestablishment of six solutions units, providing consulting services in the areasof datacentre, storage, communications, Microsoft technologies, security andcabling. Considerable work has been done in each of these areas to define moreclearly a portfolio of propositions aimed at delivering demonstrably attractivereturns on investment. A number of significant Technology Solutions projects were undertaken in 2005,including the design, testing and deployment of an upgraded IT infrastructurefor the Prescription Pricing Authority (PPA), which is required to help reducethe cost of prescription processing in England. Computacenter has also beencontracted to provide ongoing support of the PPA infrastructure under afive-year Managed Services agreement. Product Division In 2005, Computacenter experienced a 7.3% decline in UK product revenues,reflecting continuing intense price competition and the efforts of certain majorvendors to sell direct. The adverse financial impact of this revenue decline wascompounded by substantially inferior vendor terms. The gross profit from ourproduct sales over the full year fell by £35.2 million, of which £27.0 millionwas attributable to lower vendor rebates. The new Product Division comprises four business units: Corporate Hardware,Software, Computacenter Direct and CCD. Corporate Hardware In Corporate Hardware, we saw a significant shift in demand away from commodityPC and notebook products towards enterprise-class technologies, includinghigh-end servers and networking products. In particular, we saw high growth insales of enterprise products from IBM, Sun, Veritas, Cisco, EMC, Oracle and BMC.The substantial increase in product revenue in the last weeks of 2005 wasprimarily related to sales of these kinds of products, which generally attracthigher levels of margin. To help us streamline our sales processes and make them more cost-effective, wehave undertaken a number of initiatives intended to introduce a 'lighter-touch'sales model in the UK. A significant development in this area has been theretraining and realignment of our Sales Support function. This is designed toprovide a more proactive product advice service and grow revenues with existingcustomers, as well as allowing us to monitor the commercial terms ofrelationships more closely. We have also deployed a new internal sales administration system, whichsimplifies the order process and improves our ability to identify opportunitiesfor alternative or supplementary sales. More of our business was conductedonline in 2005, with 11% of orders now placed via our webshop, ComputacenterConnect, a major revision of which is due in April 2006. We introduced or are developing a number of innovative procurement servicesdesigned to make our offerings more competitive. This includes the'Computacenter Recommends' portfolio of products, launched in H2 2005, which isa range benchmarked for its high value and low cost, and offers customers highlycompatible and readily available technology. Nonetheless, the Corporate Hardware business unit continues to experiencechallenging market conditions and reducing margins. The trading terms andconditions with HP, our major vendor partner, deteriorated still furtherfollowing our annual renegotiation in November 2005. However, the decline wasmodest and we do not expect this to have a material effect on profitability in2006. Software Our new Software business unit provides software procurement consulting,sourcing and asset management services. Our software business grew 4.6% in 2005 to revenues of over £134 millionfollowing the establishment of this specialist business unit and the ensuingrenewed focus on this area. Considerable work was done in extending our licence management capability toinclude a wider range of vendor offerings and adding new personnel and skills tothe business unit. Twelve new customer propositions were defined and matchedagainst market requirements, with the overall aim of helping customers avoidunnecessary software spend and gain greater control over their software assets. To accelerate growth in this area of business we have also invested in newsystems that allow us to track customers' software procurement cycles and soidentify licence renewal or extension opportunities at an early stage. Computacenter Direct Through our new venture Computacenter Direct, we are targeting the growingmarket for IT product and services in the medium-sized business sector, wherethe scale benefits of our logistics infrastructure offer real competitiveadvantage. Revenues from this business unit increased steadily through 2005 toapproximately £4 million per month, and product margins were above thoseachieved from our traditional large corporate accounts. We continue to investfor Computacenter Direct growth; the unit now comprises over 50 employees, with35 new salespeople recruited during the year. CCD CCD, our trade distribution division, had a disappointing year. The operationsaw a significant decline in profitability due to margin pressures in a fairlystagnant market. This is the area of our business where the adverse changes invendor terms have had most impact. In addition, the prospect of channelconsolidation has led to increasingly aggressive price competition betweendistributors. In the face of these challenges, CCD embarked upon a major operating costreduction programme in 2005, reducing headcount by 15% and relocating to lowercost premises. RDC Our technology recycling and remarketing operation, RDC, had a difficult 2005,only managing to break even over the full year. H1 was particularly poor, due toa low level of new desktop and laptop implementations by some large customers,reducing the need for RDC's recycling services, coupled with the delayedintroduction of the WEEE waste management legislation in the UK. To answer customers' changing requirements more effectively in the light of thelegislation, cost reductions achieved over the year were channelled into thelaunch during Q4 of a Computacenter Asset Recovery Service (CARS) for themanagement of end-of-life computer technology. We are confident that the launch of CARS, together with successes alreadyachieved in a number of major accounts this year will take RDC back into profitin 2006. Germany After an operating loss of £1.5 million in the first half of 2005, Germanyreturned to profit in H2, recording a full year profit of £5.0 million (2004:£9.0 million) on full year revenue decline of 5.7% to £618.2 million (2004:£655.5 million). 2005 was a difficult year for Computacenter Germany with further decline in thetraditional desktop and laptop product resale business, reflecting the weakeconomic climate and the impact of vendors selling direct to end-users. Howeveras our customers began to release more capital for IT projects in H2, we saw arecovery in networking and datacentre technology revenues, fuelled by serverconsolidation and storage projects. We also saw strong growth in softwarelicensing sales as customers continued to standardise their applications suites. Overall, our services business performed satisfactorily considering the marketconditions, with revenues growing by 5.8% over 2004. Service margins recoveredstrongly after a disappointing H1, in part due to a successful renegotiation ofa particularly problematical contract. Professional Services resource utilisation was high across projects, consultancyand customer engineering and we have a strong pipeline for these activities for2006. Our Managed Services business enjoyed growth above the market in 2005.Significant successes included the securing of a contract to provide maintenanceservices to the telecommunications company Telefonica, which will transfer itsField Engineering division to Computacenter in an outsourcing agreement. In our interim report we said that our reorganisation at the beginning of theyear had four key objectives: to improve our focus on the medium-sized businessmarket; to sell a broader range of products and services to existing customers;to sharpen our focus on the growth areas of Government and Financial Services;and to improve relationships with our key vendor partners.We began to see progress on all these objectives during 2005. However, the fullimpact of our improvement plan is unlikely to be evident until 2006. France Following a very poor first half, performance improved substantially towards theend of the year, resulting in revenues that were broadly unchanged on 2004.Nevertheless, the Computacenter France operating loss deepened to £9.3 million(2004: £6.7 million), partly due to the cost of restructuring the business. The partial recovery in H2 was achieved despite continuing intense pricecompetition and was partly due to seasonal factors, with the French market forIT products typically more buoyant in the second half of the year. In addition, our largest French account, Le Ministere de la Defense, resumedexpenditure in H2, having renewed its contract with Computacenter for a furtherfour years. Expenditure had been suspended for nine months whilst the contractrenewal was put out to competitive tender. This had a material impact on overallComputacenter France revenues, negatively in H1 and, as spending recovered towell above normal levels, positively in H2. The effects of our major transformation project also began to be realised in thesecond half of the year. A substantial effort was made to rectify theinconsistent revenue stream and consequent low utilisation levels inProfessional Services. We also achieved a material improvement in our indirectcost base, with a total of 56 staff entering the formal redundancy process,which will lead to savings in 2006. In addition, we saw a material improvement in the profit performance of ourmaintenance operation following the major re-engineering project begun in 2004.This has also given us a growing pipeline of new maintenance contracts. Whilst the costs of the transformation project have adversely affected profitperformance in 2005, we believe we have made significant progress towardsComputacenter's eventual return to profit in France. As we continue to focus ondelivering revenue growth and reducing operating costs, our aim is to reduceloss in 2006 and break even in 2007. Significant wins included a major Managed Services contract with Air Liquide,including international help desk services provided by our multilingual supportfacility in Barcelona. Belgium, Netherlands and Luxembourg In Q1 2005 we extended our business to the Netherlands, establishing a smalloffice in Amsterdam. Overall, our Benelux business showed a slight loss of £0.1million (2004: profit of £0.0 million) with a 5.4% decrease in revenues to £19.9million (2004: £21.0 million). The most significant achievement in Benelux was the award in December 2005 of athree-year renewal, with extended scope, of our global desktop Managed Servicewith SWIFT. We also saw the renewal of our desktop services management agreementwith Clearstream in Luxembourg, contracted through our relationship with GroupDeutsche Borse in Germany. Consolidated income statementFor the year ended 31 December 2005 2005 2004 Note £'000 £'000Continuing operationsRevenue 2 2,285,209 2,410,590Cost of sales (1,996,381) (2,080,392) --------- ---------Gross profit 288,828 330,198 Distribution costs (19,928) (20,626)Administrative expenses (241,242) (243,394) --------- ---------Operating profit from continuing operations 27,658 66,178 Finance revenue 8,127 5,247Finance costs (2,002) (3,537)Share of loss of joint venture - (226)Share of profit of associate 229 266 --------- ---------Profit before tax 34,012 67,928 Income tax expense 3 (13,579) (19,639) --------- ---------Profit for the year from continuing operations 20,433 48,289 Discontinued operationLoss for the year from discontinued operation - (3,923) --------- ---------Profit for the year 20,433 44,366 ========= ========= Attributable to:Equity holders of the parent 20,406 44,435Minority interests 27 (69) --------- --------- 20,433 44,366 ========= ========= Earnings per share 4- basic for profit for the year 10.9p 23.8p- basic for profit from continuing operations 10.9p 25.9p- diluted for profit for the year 10.9p 23.5p- diluted for profit from continuing operations 10.9p 25.6p Consolidated balance sheetAs at 31 December 2005 2005 2004 Notes £'000 £'000Non-current assetsProperty, plant and equipment 81,601 89,914Intangible assets 9,493 7,923Investment accounted for using the equity method 288 373Deferred income tax asset 5,528 1,486 -------- -------- 96,910 99,696 -------- --------Current assetsInventories 100,233 118,914Trade and other receivables: gross 382,970 438,452Less: non returnable proceeds - (39,043) -------- --------Trade and other receivables 382,970 399,409Prepayments 63,476 55,135Forward currency contracts 191 -Cash and short-term deposits 7 164,797 138,218 -------- -------- 711,667 711,676 -------- --------Assets held in disposal groups held for sale - 9,208 -------- --------Total assets 808,577 820,580 -------- -------- Current liabilitiesTrade and other payables 315,997 306,964Deferred income 73,827 89,083Financial liabilities 64,131 58,706Income tax payable 5,712 11,519Provisions 2,190 2,358 -------- -------- 461,857 468,630 -------- --------Non-current liabilitiesFinancial liabilities 275 429Provisions 14,007 15,233Other non-current liabilities 371 2,691Deferred income tax liabilities 1,393 1,455 -------- -------- 16,046 19,808 -------- --------Liabilities included in disposal groups held for - 6,888sale -------- --------Total liabilities 477,903 495,326 -------- --------Net assets 330,674 325,254 ======== ======== Capital and reservesIssued capital 9,505 9,489Share premium 74,680 73,920Capital redemption reserve 100 100Own shares held (2,503) (2,503)Other reserves (1,757) (904)Retained earnings 250,630 245,113Amounts recognised directly in equity relating todisposal groups held for sale - (7) -------- --------Shareholders' equity 330,655 325,208Minority interest 19 46 -------- --------Total equity 330,674 325,254 ======== ======== Approved by the Board on 13 March 2006 MJ Norris Chief Executive FA Conophy Finance Director Consolidated statement of changes in equityFor the year ended 31 December 2005 Attributable to equity holders of the parent -------------------------------------------- Foreign Capital Own currency Issued Share redemption shares translation Retained Minority Total capital premium reserve held reserve earnings Total interest equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000At 1 January2004 9,441 71,486 100 (2,503) - 213,423 291,947 115 292,062Exchangedifferences onretranslationof foreignoperations:Continuing - - - - (904) - (904) - (904)Discontinued - - - - (7) - (7) - (7) ------ ------ ------- ------- ------- ------ ------ ------ ------Netincome/(expenses) recogniseddirectly inequity - - - - (911) - (911) - (911)Profit for theperiod - - - - - 44,435 44,435 (69) 44,366 ------ ------ ------- ------- ------- ------ ------ ------ ------Totalrecognisedincome andexpenses forthe year - - - - (911) 44,435 43,524 (69) 43,455Cost ofshare-basedpayments - - - - - 807 807 - 807Exercise ofoptions 48 2,434 - - - - 2,482 - 2,482Equitydividends - - - - - (13,552) (13,552) - (13,552) ------ ------ ------- ------- ------- ------ ------ ------ ------ 48 2,434 - - (911) 31,690 33,261 (69) 33,192At 31 December2004 9,489 73,920 100 (2,503) (911) 245,113 325,208 46 325,254Adoption ofIAS 32 & IAS39 - - - - - (148) (148) - (148) ------ ------ ------- ------- ------- ------ ------ ------ ------At 1 January2005 9,489 73,920 100 (2,503) (911) 244,965 325,060 46 325,106Exchangedifferences onretranslationof foreignoperations - - - - (846) - (846) - (846) ------ ------ ------- ------- ------- ------ ------ ------ ------Netincome/(expenses) recogniseddirectly inequity - - - - (846) - (846) - (846)Profit for theperiod - - - - - 20,406 20,406 (27) 20,379 ------ ------ ------- ------- ------- ------ ------ ------ ------Totalrecognisedincome andexpenses forthe year - - - - (846) 20,406 19,560 (27) 19,533Cost ofshare-basedpayment - - - - - (366) (366) - (366)Exercise ofoptions 16 760 - - - - 776 - 776Equitydividends - - - - - (14,375) (14,375) - (14,375) ------ ------ ------- ------- ------- ------ ------ ------ ------ 16 760 - - (846) 5,665 5,595 (27) 5,568 ------ ------ ------- ------- ------- ------ ------ ------ ------At 31 December2005 9,505 74,680 100 (2,503) (1,757) 250,630 330,655 19 330,674 ====== ====== ======= ======= ======= ====== ====== ====== ====== Consolidated cash flow statementFor the year ended 31 December 2005 2005 2004 Notes £'000 £'000Operating activitiesOperating profit from continuing operations 27,658 66,178Adjustments to reconcile Group operating profit tonet cash inflows from operating activitiesLoss for the year from discontinued operation - (1,547)Depreciation 15,535 17,017Amortisation 1,784 1,365Share based payment (366) 898(Profit)/loss on disposal of property, plant andequipment (85) 756Loss on disposal of intangibles - 48Profit on disposal of investment - (1,603)Dividend received from associate 303 509Decrease in inventories 16,824 14,278Increase in trade and other receivables (25,904) (23,156)Increase/(decrease) in trade and other payables 29,925 (14,604)Currency and other adjustments 287 181 --------- --------Cash generated from operations 65,961 60,320Income taxes paid (18,366) (12,296) --------- --------Net cash flow from operating activities 47,595 48,023 --------- -------- Investing activitiesInterest received 9,086 4,359Sale of subsidiary net of cash disposed of (252) -Sale of property, plant and equipment 205 1,756Purchase of property, plant and equipment (6,950) (11,615)Sale of intangible assets - 211Purchases of intangible assets (3,385) (2,593)Dividend received - 23Sale of listed investments - 4,650Funds received from settlement of net asset claimon previously acquired subsidiary 26,918 - --------- --------Net cash flow from investing activities 25,622 (3,209) --------- -------- Financing activitiesInterest paid (2,063) (3,439)Dividends paid to equity shareholders of the parent (14,418) (13,587)Proceeds from share issues 776 2,482Repayment of capital element of finance leases (321) (39)Decrease in factor financing (6,401) - --------- --------Net cash flow from financing activities (22,427) (14,583) --------- -------- Increase in cash and cash equivalents 50,790 30,232Effect of exchange rates on cash and cash 1,576 (149)equivalentsCash and cash equivalents at the beginning of the 7 80,545 50,462year --------- --------Cash and cash equivalents at the year end 7 132,911 80,545 ========= ======== Analysis of changes in net funds At 1 Cash January flows in Exchange At 31 December 2005 year differences 2005 £'000 £'000 £'000 £'000Cash and cashequivalents 80,545 50,790 1,576 132,911Factorfinancing (39,043) 6,401 1,100 (31,542)Finance leases (172) (480) - (652)Bank loan (326) - - (326) ------ ------- ------ ----------Net funds 41,004 56,711 2,676 100,391 ====== ======= ====== ========== The Group's net funds as at 31 December 2004 were £80.0 million. The impact ofthe adoption of IAS 32 and IAS 39 was to decrease net funds by £39.0m due to areclassification from trade and other receivables to financial liabilities inrespect of non-recourse financing arrangements. This amount was previously shownunder a linked presentation. Notes to the consolidated financial statements Summary of significant accounting policies 1 Basis of preparation The results for the year ended 31 December 2005 represent the first annualreport that the Group has prepared in accordance with its accounting policiesunder IFRS. A description of how the Group's reported performance and financialposition are affected by this change, including reconciliations from UK GAAP toIFRS for prior years and the revised summary of significant accounting policiesunder IFRS, is given in note 8 with further information available on theInvestors Section of the corporate website at www.computacenter.com. The Group's audited financial statements have been prepared in accordance withIFRS and are covered by IFRS 1, First-time adoption of IFRS. The financialstatements have been prepared in accordance with those IFRS standards issued andeffective as at the time of preparing the statements, and have been appliedretrospectively except where certain exceptions apply. The consolidated financial statements are presented in sterling and all valuesare rounded to the nearest thousand (£'000) except when otherwise indicated. Change in accounting policy From 1 January 2005 the Group has adopted the financial instruments standardsIAS 32 and IAS 39. The only material changes on adoption of these standards hasbeen on accounting for foreign currency forward contracts and non-recourse debtfinancing. Foreign currency forward contracts The changes attributable to the fair values of both the hedging instruments andthe hedged item are recognised at each reporting date. Non-recourse debt financing Under UK GAAP, the Group adopted a linked presentation for its non-recourse debtfinancing. This presentation method is not permissible under IFRS andaccordingly the non-recourse financing element has been reclassified asborrowings for 2005. As permitted under IFRS1, first time adoption of International FinancialReporting Standards, the Group has elected not to restate comparativeinformation for the financial instruments standards IAS 32 and IAS 39. Arestatement of the opening balance sheet at 1 January 2005 to present theGroup's opening position under IAS 32 and 39 is included in these financialstatements as note 9. 2 Segmental analysis The Group's primary reporting format is geographical segments and its secondaryformat is business segments. The Group's geographical segments are determined bythe location of the Group's assets and operations. The Group's business in eachgeography is managed separately and held in separate statutory entities. Year ended 31 December 2005 UK Germany France Benelux Total £'000 £'000 £'000 £'000 £'000RevenueSales to externalcustomers 1,351,307 618,238 295,784 19,880 2,285,209Inter-segment sales 8,401 24,604 293 3,539 36,837 --------- -------- -------- -------- ---------Segment revenue 1,359,708 642,842 296,077 23,419 2,322,046 ========= ======== ======== ======== ========= ResultGross profit 169,876 87,709 28,941 2,302 288,828 Distribution costs (11,315) (5,160) (3,360) (93) (19,928)Administrativeexpenses (126,482) (77,548) (34,894) (2,318) (241,242) --------- -------- -------- -------- ---------Operating profit 32,079 5,001 (9,313) (109) 27,658 --------- -------- -------- -------- --------- Net finance income 8,055 (553) (1,347) (30) 6,125Share of associate'sprofit - 229 - - 229 --------- -------- -------- -------- --------- Profit before tax 40,134 4,677 (10,660) (139) 34,012Income tax expense (13,579) ---------Profit for the yearfrom continuingoperations 20,433 ========= Assets and liabilitiesSegment assets 569,043 136,784 100,880 1,582 808,289Investment in anassociate - 288 - - 288 --------- -------- -------- -------- ---------Total assets 569,043 137,072 100,880 1,582 808,577 ========= ======== ======== ======== ========= Segment liabilities 233,129 116,895 123,952 3,927 477,903 --------- -------- -------- -------- ---------Total liabilities 233,129 116,895 123,952 3,927 477,903 ========= ======== ======== ======== ========= Other segmentinformationCapital expenditure:Property, plant andequipment 6,138 1,020 555 124 7,837Intangible fixedassets 3,083 284 18 - 3,385 ========= ======== ======== ======== ========= Depreciation 11,570 2,981 882 102 15,535Amortisation 1,093 295 358 38 1,784 ========= ======== ======== ======== ========= Year ended 31 December 2004 Continuing operations Discontinued operation UK Germany France Benelux Total Austria Total £'000 £'000 £'000 £'000 £'000 £'000 £'000RevenueSales toexternalcustomers 1,433,685 655,501 300,380 21,024 2,410,590 45,162 2,455,752Inter-segmentsales 6,923 2,116 202 1,012 10,253 116 10,369 --------- ------- ------- ------- --------- -------- ---------Segmentrevenue 1,440,608 657,618 300,582 22,035 2,420,843 45,278 2,466,121 ========= ======= ======= ======= ========= ======== ========= ResultGross profit 205,656 90,479 31,771 2,291 330,198 5,203 335,401 DistributionCosts (12,134) (5,032) (3,353) (107) (20,626) (133) (20,759)Administrativeexpenses (129,678) (76,448) (35,100) (2,168) (243,394) (6,617) (250,011) --------- ------- ------- ------- --------- -------- ---------Operatingprofit 63,845 8,999 (6,682) 16 66,178 (1,547) 64,630 --------- ------- ------- ------- --------- -------- --------- Net financeincome 5,106 (1,239) (2,086) (71) 1,710 (19) 1,691Share of jointventure's loss (226) - - - (226) - (226)Share ofassociate'sprofit - 266 - - 266 - 266 --------- ------- ------- ------- --------- -------- ---------Profit beforetax fromcontinuingoperations 68,725 8,026 (8,768) (55) 67,928 (1,567) 66,362Provision forloss ondisposal ofdiscontinuedoperation - - - - - (2,356) (2,356) --------- ------- ------- ------- --------- -------- ---------Profit beforetax 68,725 8,026 (8,768) (55) 67,928 (3,922) 64,006Income taxexpense (19,639) (1) (19,640) -------- -------- ---------Net profit forthe year 48,289 (3,924) 44,366 ======== ======== ========= Assets andliabilitiesSegment assets 550,388 188,766 70,131 1,714 810,999 9,208 820,207Investment inan associate - 373 - - 373 - 373 --------- ------- ------- ------- --------- -------- ---------Total assets 550,388 189,139 70,131 1,714 811,372 9,208 820,580 ========= ======= ======= ======= ========= ======== ========= Segmentliabilities 232,300 168,685 82,535 4,918 488,438 6,888 495,326 --------- ------- ------- ------- --------- -------- ---------Totalliabilities 232,300 168,685 82,535 4,918 488,438 6,888 495,326 ========= ======= ======= ======= ========= ======== ========= Other segmentinformationCapitalexpenditure:Property,plant andequipment 7,516 3,061 893 80 11,550 65 11,615Intangiblefixed assets 2,021 386 160 26 2,593 - 2,593 ========= ======= ======= ======= ========= ======== ========= Depreciation 12,383 3,512 860 99 16,854 163 17,017Amortisation 724 274 363 4 1,365 - 1,365 ========= ======= ======= ======= ========= ======== ========= 3 Income tax a) Tax on profit on ordinary activitiesTax charged in the income statement 2005 2004 £'000 £'000Current income taxUK corporation tax 12,872 21,104Foreign tax 31 4Adjustments in respect of current income tax of previous years (202) (3,249)Consortium relief (119) 63 --------- ---------Total current income tax 12,582 17,922 ========= ========= Deferred taxRelating to origination and reversal of temporarydifferences 997 1,846Prior year adjustments - (129) --------- ---------Total deferred tax 997 1,717 --------- ---------Tax charge in the income statement 13,579 19,639 ========= ========= The tax charge in the income statement is disclosed asfollows:Income tax expense reported on continuing operations (13,579) (19,639)Income tax expense on discontinued operation - (1) --------- --------- (13,579) (19,640) ========= ========= Tax relating to items charged or credited to equityDeferred taxRelief on share option gains 16 48 --------- ---------Tax credit in the statement of changes in equity 16 48 ========= ========= b) Reconciliation of the total tax charge 2005 2004 £'000 £'000 Profit from continuing operations before taxation 34,012 67,928Loss before tax from discontinued operation - (3,923) -------- --------Accounting profit before income tax 34,012 64,005 ======== ======== At the UK standard rate of corporation tax of 30% (2004:30%) 10,204 19,202Expenses not deductible for tax purposes 673 234Relief on share option gains - (5)Adjustments in respect of current income tax of previousyears (202) (616)Adjustment following agreement of certain items forearlier - (2,447)yearsHigher tax on overseas earnings 1 1Provision for loss on disposal of overseas subsidiary - 686Disposal of investment - (569)Accounting depreciation in excess of tax depreciation 518 80Other timing differences (761) 87Consortium relief (119) -Profit of overseas undertakings not taxable due tobrought (4) (5)forward loss offsetLosses of overseas undertakings not available for relief 3,269 3,121Adjustment in respect of deferred tax of earlier years - (129) -------- --------At effective income tax rate of 39.9% (2004: 30.6%) 13,579 19,640 ======== ======== 4 Earnings per ordinary shareBasic earnings per share amounts are calculated by dividing net profit for theyear attributable to ordinary equity holders of the parent by the weightedaverage number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profitattributable to ordinary shareholders by the weighted average number of ordinaryshares outstanding during the year adjusted for the effect of dilutive options. The following reflects the income and share data used in the total operationsbasic and diluted earnings per share computations: 2005 2004 £'000 £'000 Net profit attributable to equity holders from continuingoperations 20,406 48,358Loss attributable to equity holders from discontinuedoperations - (3,923) -------- --------Net profit attributable to equity holders of the parent 20,406 44,435 ======== ======== 2005 2004 000's 000's Basic weighted average number of shares (excludingtreasury shares) 187,210 186,441Effect of dilution:Share options 658 2,538 -------- --------Diluted weighted average number of shares 187,868 188,979 ======== ======== There have been no other transactions involving ordinary shares or potentialordinary shares since the reporting date and before the completion of thesefinancial statements. Discontinued operationsLoss per share for 2005 of nil (2004: 2.1p) for the discontinued operation isderived from the net loss attributable to equity holders of the parent fromdiscontinuing operations of £nil (2004:£3,923,000) divided by the weightedaverage number of ordinary shares for both basic and diluted amounts as per thetable above. 5 Dividends paid and proposed 2005 2004 £'000 £'000Declared and paid during the year: Equity dividends on ordinary shares:Final dividend for 2004: 5.2p (2003: 5.0p) 9,735 9,236Interim dividend for 2005: 2.5p (2004: 2.3p) 4,590 4,316 -------- -------- 14,325 13,552 ======== ======== Proposed for approval at AGM (not recognised as a liability as at 31 December) Equity dividends on ordinary shares:Final dividend for 2005: 5.0p (2004: 5.2p) 9,400 9,735 ======== ======== 6 Business combinations Further to the German and Austrian acquisition update contained in note 14 ofthe 2004 Annual Report and Accounts and the outcome of the work of theindependent Expert, PricewaterhouseCoopers, the Group has now resolved the taxassets claim noted as a contingent liability in its 2004 Report and Accounts.On the 15th October 2003 the vendors claimed that the Group had breached aprovision of the German Purchase Agreement concerning an adjustment relating totax assets, and issued a claim for EUR52,165,292 (£36,892,800) plus interest,for upfront payment of the tax assets as opposed to payment as the assets areutilised. Following an arbitration hearing, Computacenter reached an agreementwith the vendors under which the vendor's claim was withdrawn and Computacenterpurchased the tax assets outright. Although the arbitral tribunal did not rendera final decision on the merits of the tax claim, it proposed a settlement, whichdid not allocate value to this claim. The Net Asset Value claim of £32,448,000 was included as a receivable in tradeand other receivables at 31st December 2004, the net result of this agreement isthat Computacenter received EUR40,000,000 (£26,918,000) . The upfront purchaseof the tax assets has resulted in a deferred tax asset on the Group balancesheet. The resolution of this claim has had no impact in the year on the incomestatement. Disposal of subsidiaryOn 2 January 2005 the Group disposed of its Austrian subsidiary, ComputacenterGmbH (Computacenter Austria), a company that was a separate geographical segmentof the Group. At 31 December 2004, Computacenter Austria was classified as an asset held forsale, and was stated at the lower of carrying value and fair value less costs tosell, and income and expenses for the year ended 31 December 2004 were includedwithin the income statement, details of which are given in note 3. The net assets of Computacenter Austria, which included cash of £963,000, weredisposed for consideration of £711,000. 7 Cash and short-term deposits 2005 2004 £'000 £'000 Cash at bank and in hand 164,797 98,218Short-term deposits - 40,000 -------- -------- 164,797 138,218 ======== ======== Cash at bank and in hand earns interest at floating rates based on daily bankdeposit rates. Short-term deposits are made for varying periods of between oneday 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 ofcash and cash equivalents is £164,797,000 (2004: £138,218,000). At 31 December 2005, the Group had available £81,942,000 (2004: £58,894,000) ofundrawn committed borrowing facilities in respect of which all conditionsprecedent had been met. For the purposes of the consolidated cash flow statement, cash and cashequivalents comprise the following at 31 December: 2005 2004 £'000 £'000 Cash at bank and in hand 164,797 98,218Short-term deposits - 40,000Bank overdrafts (note 20) (31,886) (58,637) -------- -------- 132,911 79,582Cash at bank and in hand attributable to discontinuedoperation - 963 -------- -------- 132,911 80,545 ======== ======= 8 Transition to IFRSsFor all periods up to and including the year ended 31 December 2004, the Groupprepared its financial statements in accordance with United Kingdom generallyaccepted accounting practice (UK GAAP). These financial statements, for the yearended 31 December 2005, are the first that the Group is required to prepare inaccordance with International Financial Reporting Standards (IFRSs) as adoptedby the European Union (EU). Accordingly the Group has prepared financial statements which comply with IFRSsapplicable for periods beginning on or after 1 January 2005 and the significantaccounting policies meeting those requirements are described in note 2. Inpreparing these financial statements, the Group has started from an openingbalance sheet as at 1 January 2004, the Group's date of transition to IFRSs, andhas made those changes in accounting policies and other restatements required byIFRS 1 for the first-time adoption of IFRSs. This note explains the principaladjustments made by the Group in restating its UK GAAP balance sheet as at 1January 2004 and its previously published UK GAAP financial statements for theyear ended 31 December 2004. Summary of IFRSs impactThe impact on the profit for the year ended 31 December 2004 is detailed in thetable below: Year ended 31 December 2004 ----------------------------- Profit before tax, continuing Income tax Discontinued Profit for operations expense operations the year --------- -------- --------- -------- £'000 £'000 £'000 £'000---------------------- --------- -------- --------- --------UK GAAP 67,287 (19,860) (2,642) 44,785---------------------- --------- -------- --------- --------Reclassification Discontinued operation 1,568 (1) (1,567) -Adjustments1a Positive goodwill 282 - - 2821b Negative goodwill (531) - - (531) 2 Share based payment (898) 222 - (676) 3 Employee benefits 35 - - 35 4 Accounting for joint venture 185 - 286 471---------------------- --------- -------- --------- --------Total IFRSadjustments (927) 222 286 (419)---------------------- --------- -------- --------- --------IFRS 67,928 (19,639) (3,923) 44,366---------------------- --------- -------- --------- -------- The impact on total equity (and net assets) at 31 December 2004 and 31 December2003 is shown in the table below: 31 December 2004 31 December 2003 ---------------- ---------------- Total equity Total equity £'000 £'000---------------------- ---------------- ----------------UK GAAP (315,138) (282,883)---------------------- ---------------- ----------------Reclassification Discontinued operation - -Adjustments1a Positive goodwill (282) -1b Negative goodwill - (531) 2 Share based payment (461) (330) 3 Employee benefits 883 918 4 Accounting for joint venture (471) - 5 Proposed dividend (9,785) (9,236)---------------------- ---------------- ----------------Total IFRS adjustments (10,116) (9,179)---------------------- ---------------- -------------------------------------- ---------------- ----------------IFRS (325,254) (292,062)---------------------- ---------------- ---------------- The adjustments create no material impact on the cash flows of the Group. Explanatory notes on the impact of IFRSsThe notes below explain the impact that the adoption of IFRSs has had on theGroup's consolidated results. Discontinued operationThe discontinued operation relates to the results of Computacenter Austria,which, under IFRS, is classified as held for sale as at 31 December 2004. Forcomparative purposes all figures within the 2004 results, in respect of thisoperation, have been removed from continuing operations. Under UK GAAP, therelevant amounts were disclosed under discontinued operations in the 2004year-end accounts only. Other adjustments 1) IFRS 3 - Business combinations; IAS 36 - Impairment of assets; IAS 38 -Intangible assetsIFRS 3 applies to accounting for business combinations for which the agreementdate is on or after 31 March 2004. The Group has elected not to apply IFRS 3 retrospectively to businesscombinations that took place prior to 1 January 2004. As a result in the openingbalance sheet, positive goodwill arising from previous business combinationsremains (£4.8m) as stated under UK GAAP at 31 December 2003. The transitional provisions of IFRS 3 have required the Group to carry forwardthe UK GAAP net book value of positive goodwill as deemed cost under IFRS, andto eliminate the net negative goodwill brought forward under UK GAAP of £531,000with a corresponding entry in reserves at 1 January 2004. The adoption of IFRS 3 and IAS 36 has resulted in the Group ceasing annualgoodwill amortisation from 1 January 2004. As a result, the UK GAAP amortisationcharge of £282,000 and credit of £531,000, for positive and negative goodwillrespectively have been removed from the Group's 2004 IFRS profit for the year. 2) IFRS 2 - Share-based paymentIFRS 2 'Share-based payment' requires an expense to be recognised where theGroup buys goods or services in exchange for shares or rights over shares('equity-settled transactions'), or in exchange for other assets equivalent invalue to a given number of shares or rights over shares ('cash-settledtransactions'). The main impact of IFRS 2 on the Group is the expensing ofemployees' and directors' share options and other share-based incentives byusing an option-pricing model. The effect of the revised policy has decreased consolidated 2004 profit beforetax by £898,000, and half year profits by £550,000 due to an increase in theemployee benefits expense with a corresponding increase in equity which is takento retained earnings. A corresponding deferred tax movement has also beenaccounted for. 3) IAS 19 - Employee benefitsIAS 19 requires the Group to recognise in full liabilities in relation toemployee benefits. As at 1 January 2004, the Group has recognised an additional£918,000 of liabilities for holiday pay and other long-term employee benefits.The corresponding provision as at 31 December 2004 is £883,000, and as a result,there is an increase in the profit for the year of £35,000 for the year ended 31December 2004. This introduces seasonality into the Group's result, because the holidayentitlement of employees is typically higher at 30 June that at 31 December. Theadditional provision required at 30 June 2004 results in a charge to thehalf-year income statement of £2,519,000. 4) IAS 31 - Interest in joint ventureUnder UK GAAP the Group's interest in its joint venture was accounted under thegross equity method, which is not a recognised approach under IFRS. The Grouphas therefore changed its method of accounting for the joint venture to equityaccounting. During the second half of 2004 the Group's holding in its joint venture wasdiluted, and its share of the losses exceeded the Group's net investment. UnderUK GAAP the Group was required to continue recognising its share of the losseseven though this resulted in a net negative amount in the balance sheet. Under IFRS the Group only recognises its share of the losses up until thepoint that its net investment is reduced to zero. This has resulted in £185,000of losses and an exceptional charge of £286,000 in respect of the dilution inthe Group's holding, both of which were recognised under UK GAAP, not beingrecognised under IFRS. 5) IAS 10 - Events after the balance sheet date In accordance with IAS 10, dividends declared after the balance sheet date arenot recognised as a liability in the financial statements as there is no presentobligation at the balance sheet date, as defined by IAS 37 - Provisions,contingent liabilities and contingent assets. Accordingly, the final dividendsfor 2003 of £9,236,000 and 2004 of £9,785,000 (as recognised under previousGAAP) are de-recognised in the balance sheets for 31 December 2003 and 31December 2004. The interim dividend has also been accounted for in this manner. Other reclassification entriesIAS 38 - Intangible assetsComputer software that is not an integral part of the related hardware isclassified as an intangible asset under IFRS, whereas such assets wereclassified under tangible assets under UK GAAP. Reclassifications of £2,251,000have been made between tangible and intangible assets at 1 January 2004,£2,077,000 at 30 June 2004 and £3,167,000 at 31 December 2004 accordingly. IAS 21 - The effects of changes in foreign exchange ratesFrom 1 January 2004, foreign currency translation differences are pulled into aseparate reserve. As stated on page 4, the Group has elected, under theprovisions of IFRS 1, to set the historic translation differences on foreignsubsidiaries to zero. Additional changes from 1 January 2005 IAS 32 and 39 - Financial instruments: recognition, measurement and disclosureThe Group has taken advantage of the transitional provisions of IAS 32 and IAS39 and has not adopted these two standards early. They will be adopted from 1January 2005. The comparative information for 2004 has not been restated from UKGAAP to IFRS. The restatement of the balance sheet for the adoption of IAS 32and IAS 39 is shown in note 9. The most material changes on adoption of these standards will be due tonon-recourse financing and accounting for foreign currency forward contracts. Non-recourse financingFor the 2004 comparative numbers, under UK GAAP, the Group has adopted a linkedpresentation of its non-recourse financing, in line with FRS 5 'Reporting thesubstance of transactions'. Linked presentation is not permitted under IFRS.Application of IFRS to the non-recourse financing scheme in operation throughout2004 would have resulted in the financing element being accounted for asborrowings. There would have been no impact on the 2004 income statement. Forward currency contractsThe Group uses forward currency contracts to hedge material risks associatedwith movements in foreign currency exchange rates. In 2004 the material riskrelated to a £32,448,000 receivable (in Euros) relating to the purchase of GECompuNet and GECITS Austria in 2003. Under UK GAAP the fair value of the foreign currency forward contracts has notbeen recognised, and the receivable has been recorded at the contract rate. Under IFRS, foreign currency forward contracts are recognised at their fairvalue. The receivable would also be recognised at its fair value, and berecorded at the spot rate prevailing at the balance sheet date. If IAS 32 and 39 had been applied from 1 January 2004, there would have been anasset of £75,000 on the opening balance sheet, and a net movement in the incomestatement in 2004, from measuring both instruments at fair value, of a loss of£286,000 before tax. 9 Restatement of balance sheet and equity at 1 January 2005 for the effects ofIAS 32 and IAS 39Under IFRS 1, first time adoption of international financial reportingstandards, the Group is not required to present comparative information whichcomplies with IAS 32 and IAS 39. The Group's hedging strategy is unchanged inrespect of covering the risk of foreign currency purchases. The accountingdifferences for which the 2005 opening balance sheet is restated and which willapply to the 2005 accounts are noted below: Balance sheet at1 January 2005 Hedging of forward IFRS pre restatement currency Non-recourse Restated for IAS 32 & IAS 39 contracts financing IFRS £'000 £'000 £'000 £'000Non-currentassetsProperty,plant andequipment 89,914 - - 89,914Intangibleassets 7,923 - - 7,923Investment inan associateaccounted forusing theequity method 373 - - 373Deferredincome taxasset 1,486 - - 1,486 -------- ------- ------- ------- 99,696 - - 99,696 -------- ------- ------- -------Current assetsInventories 118,914 - - 118,914Trade andotherreceivables:gross 438,452 1,736 - 440,188Less:non-returnableproceeds (39,043) - 39,043 - -------- ------- ------- -------Trade andotherreceivables 399,409 1,736 39,043 440,188Prepayments 55,135 - - 55,135Cash andshort-termdeposits 138,218 - - 138,218 -------- ------- ------- ------- 711,676 1,736 39,043 752,455 -------- ------- ------- -------Assets held indisposalgroups heldfor sale 9,208 - - 9,208 -------- ------- ------- -------Total assets 820,580 1,736 39,043 861,359 ======== ======= ======= ======= CurrentliabilitiesTrade andother payables 306,964 - - 306,964DeferredIncome 89,083 - - 89,083Interest-bearing loans andborrowings 58,706 - 39,043 97,749Forwardcurrencycontracts - 1,947 - 1,947Income taxpayable 11,519 - - 11,519Provisions 2,358 - - 2,358 -------- ------- ------- ------- 468,630 1,947 39,043 509,620 -------- ------- ------- -------Non-currentliabilitiesInterest-bearing loans andborrowings 429 - - 429Provisions 15,233 - - 15,233Othernon-currentliabilities 2,691 - - 2,691Deferredincome taxliabilities 1,455 (63) - 1,392 -------- ------- ------- ------- 19,808 (63) - 19,745 -------- ------- ------- -------Liabilitiesincluded indisposalgroups heldfor sale 6,888 - - 6,888 -------- ------- ------- -------Totalliabilities 495,326 1,884 39,043 536,253 -------- ------- ------- -------Net assets 325,254 (148) - 325,106 ======== ======= ======= ======= Capital andreservesIssued capital 9,489 - - 9,489Share premium 73,920 - - 73,920Capitalredemptionreserve 100 - - 100Own sharesheld (2,503) - - (2,503)Other reserves (904) - - (904)Retainedearnings 245,113 (148) - 244,965Amountsrecogniseddirectly inequityrelating todisposalgroups heldfor sale (7) - - (7) -------- ------- ------- -------Shareholders'equity 325,208 (148) - 325,060Minorityinterest 46 - - 46 -------- ------- ------- -------Total equity 325,254 (148) - 325,106 ======== ======= ======= ======= The Group has applied hedge accounting under IAS 39 for certain foreign currencyexposures. The changes attributable to the fair values of both the hedginginstruments and the hedge item are recognised in the income statement at eachmeasurement date. Under UK GAAP, the Group adopted a linked presentation for its non-recourse debtfinancing. This presentation method is not permissible under IFRS andaccordingly the finance element has been reclassified as borrowings for 2005. 10 Publication of non-statutory accounts The financial information contained in this preliminary statement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The financial information set out in this announcement is extracted fromthe full Group financial statements for the year ended 31 December 2005, theauditor's report on which has yet to be signed This information is provided by RNS The company news service from the London Stock Exchange