KEY ELEMENTS:
Largest financial services new business win to date – ITNET and Equitas have signed an initial agreement and are now negotiating a contract for a deal estimated to be worth GBP37.5m
Partnership agreement signed with Siebel Systems to provide a leading CRM solution to local authorities
First customer for OneGov the range of services launched by ITNET for local government
SPEAR consortium to provide ASP Stakeholder pensions working with Bacon and Woodrow, Sun Microsystems and HISL
Commenting on the results, Bridget Blow, Chief Executive, said:
In the half year to 30 June 2000, turnover increased by 24% to GBP75.7m (1999: GBP61.0m), including a significant contribution from the acquisitions of French Thornton and Easams (GBP8.8m). Underlying growth, excluding the acquisitions, reflected industry trends at 10%.
Content from our partners
Operating profit (pre-goodwill amortisation) of GBP4.9m for the period exceeded the prior year by 22% (1999: GBP4.0m). The contribution from the acquisitions was GBP1.8m with both businesses matching or exceeding expectations. The widely reported slowdown in demand for IT services following Y2K has led to lower than anticipated revenues in the project-related parts of our business, including both applications outsourcing and Technosys. This shortfall is exaggerated by the comparison with the results for the first half last year, which were particularly strong as companies pulled work forward to ensure a smooth Y2K transition. The revenue shortfall and consequent lower utilisation rates, had an adverse impact on operating margins in the underlying business. The Group operating profit margin (pre-goodwill amortisation) as a percentage of sales was 6.4% compared to 6.6% last year, due to the quieter market conditions and also as a result of investment in sales, marketing and the expansion of our e-business services.
Profit before tax (pre-goodwill amortisation) of GBP4.4m (1999: GBP4.2m) has been affected by additional interest costs incurred on borrowings to fund the acquisitions and increases in working capital and other debt. The anticipated full year tax rate of 25% has been used for the period, reflecting a one-time tax benefit of almost £1m on the issue of 600,000 shares to a Qualifying Employee Share Trust (QUEST).
Earnings per share (pre-goodwill amortisation) increased from 4.2p to 4.7p.
Operating cash flows reduced cash by GBP6.6m (1999: GBP7.7m cash generation). The cash outflow is accounted for by: an increase in trade debtors, primarily relating to the acquisitions; investment in service delivery for revenues and benefits contracts; and planned new IT investment in the London Borough of Enfield contract. We anticipate that cash flows will improve later in the year, firstly as service efficiencies come through and secondly, as current discussions with customers to restructure the contracts conclude.
Since the year-end, the deferred cost on local authority revenues and benefits contracts has increased by GBP3.3m to GBP17.4m, reflecting the additional service delivery expenditure. Re-negotiation of these contracts has commenced and we expect a satisfactory result to be achieved in the fourth quarter. The outcome of the negotiations will be announced in due course and reflected in our full-year accounts.
An interim dividend of 1.1p per share (1999:1.1p) will be paid on 9 October 2000 to shareholders on the register at 22 September 2000.
Acquisitions
EASAMS, the IT services subsidiary of Marconi Group whose assets we acquired in March for an initial consideration of GBP3.1 million, has made a strong contribution to the Group performing ahead of our expectations. As well as the framework agreement with Marconi, worth up to GBP5 million, which was part of the acquisition, contract extensions have been secured at Marconi Mobile, Alstom Transport and GDA – a supplier of Hotpoint, Canon and Creda, with customer renewals at Marconi plc and BAe Systems. In addition, the integration of EASAMS into the Group is progressing well. Hardware and software consolidation, coupled with headcount reduction has resulted in significant increases in efficiency and profitability. Going forward, however, margins are expected to return to a more normal level and the planned end of two major contracts will reduce ongoing revenues by approximately 30% for 2001 and 2002.
The French Thornton Partnership, acquired in January for an initial consideration of GBP8.5m and GBP6.75m earnout, has performed well, with three new consultancy contracts in the first half ClientLogic, e-retailer, Buy.com and The Post Office’s ‘SPICE’ programme a CRM solution integrating all customer processes. As well as introducing 30 high level consultants and programme managers to the Group, the acquisition has also extended our European customer base 20% of French Thornton business in the first half has been in Europe.
