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RNS Number:7234S
Synstar PLC
02 December 2003
Synstar plc
Preliminary Results 2003
Total Operating Profit up 6%
Advanced negotiations to sell French operations
Order book up 56%
Synstar plc, the pan-European IT services provider, announces results for the
year ended 30 September 2003.
Key Highlights
* Total operating profit up 6% to #8.5m (2002: #8.0m)
* Net cash inflow before financing up 17% to #9.8m (2002: #8.4m)
* Mixed performance in Continental Europe counterbalanced by strong
performance in core UK business where operating profits were up 44% to #13.7
million (2002: #9.5 million)
* Dividend payments initiated at 0.5p per share
* New Managed Services customers including Cognotec, Atomic Weapons
Establishment, Dutch Ministry of Defence (DTO) and the Spanish Department of
Health (CAM)
* Largest ever contract signed with Fujitsu in September 2003 worth
approximately #200 million
* Phase 4 initiated to accelerate strategic programme to address expected
Maintenance margin decline
* Expected to result in an operating exceptional charge in 2004
Commenting on the preliminary results, John Leighfield, Chairman, said:
"This has been another good year of progress for the business with our existing
business excluding France performing well in terms of gross margins, operating
profits and cash generation. There has been a recent acceleration of the
pressure on margins in our traditional maintenance business but the strategy of
offering integrated Managed Services to large companies is producing significant
contracts with long-term revenue streams at good margins. The progress made
this year and the next phases of our strategy that we are planning will position
Synstar well for the future and hence the Board's decision to begin paying
dividends to shareholders."
Steve Vaughan, Chief Executive of Synstar, added:
"We have generated good momentum for the business during the course of the past
three years. Our strategy has been to focus on those areas which are core to
sustaining our longer term aim of higher margin, profitable business.
It is clear to us that we are taking the business in the right direction, but
our markets are changing rapidly. Demand for Managed Services continues to rise
just as margins in our Maintenance business are coming under real pressure. The
combination of these factors will be felt in our margins in 2004, particularly
in the first half, and makes it all the more important for us to accelerate our
Managed Service capability. This next step involves additional spending on
people and skills across the UK and Europe that will amount to about #5 million.
Furthermore, over the past three years we have not been shy of exiting markets
where product mix, poor financial performance and a fundamentally difficult
business environment have distracted the Group both in terms of financial
commitment and management time. For this reason, we have reached advanced
negotiations to sell our French business to its management team. If completed
successfully, this action will improve the operating profitability of the
Group."
Financial performance
FY 2003 FY 2002 Change
- Turnover #223.0m #221.9m +1%
- Gross Margin 26.8% 26.3% +1%
- Operating Profit #8.5m #8.0m +6%
- Operating Profit (existing business exc France) #11.8m #9.1m +30%
Profit Before Tax #8.7m #6.5m +34%
Adjusted Earnings per Share (before exceptional) 3.6p 3.4p +6%
Net cash inflow before financing #9.8m #8.4m +17%
For more information, please contact:
Steve Vaughan / Stephen Gleadle / Christine Jones Tel: 020 7831 3113 (on 2.12.03)
Synstar plc Tel: 01344 662744 (thereafter)
Ed Bridges / James Melville-Ross / Juliet Clarke
Financial Dynamics Tel: 020 7831 3113
Chairman's Statement
Overall Synstar performed strongly in 2003. We have consistently said that our
over-riding principle is to manage the business for profit and cash. This
remained true in 2003. Year on year operating profit has risen by 6% from #8.0
million to #8.5 million; net cash inflow before financing has increased by 17%
from #8.4 million to #9.8 million.
The most intractable problem we have faced recently has been with our operations
in France, where a combination of lack of critical mass and the inherent
inflexibility of the French business environment has defied all attempts to
bring the operation into profit. We are therefore pleased to be at an advanced
stage of negotiations for the disposal of this business.
As we come to the conclusion of the third phase of the strategy, we need to gear
up for the next phase of the group's development. The Board believes strongly
that action is needed in the face of the inexorable pressure of reducing margins
in our maintenance business. Building on the foundations of what we have already
put in place, we need to invest to accelerate our strategy. This will allow us
to exploit more fully our competence in winning larger and more highly
differentiated contracts. The winning of the AWE and Fujitsu contracts are
examples of what we can now achieve. Synstar's track record of delivering once
the course of action has been set gives us the confidence to build the value of
the group in this way through a fourth phase.
It is our intention to pay our maiden dividend of 0.5p per share following
shareholder approval at the Annual General Meeting in March 2004. We believe
that this makes a statement about the quality of the business. It is set at a
level that makes us confident that the dividend will be sustainable, and improve
over time.
At the Interims I also said that the Board was in the process of recruiting an
additional independent non-executive director. We were delighted when Jo
Connell agreed to join the Board. Jo was previously managing director of Xansa
plc and she brings a wealth of experience of the type of higher value added
service that will be crucial as we develop Phase 4 of the strategy.
John Leighfield
Chairman
2 December 2003
Chief Executive's Review
Introduction
In January 2001 Synstar embarked upon a programme of immense change. My three
year strategy was designed to make the most of customer relationships and build
an integrated IT services business. We have invested much time, effort and money
during those three years. The results - financial, commercial and technical -
are encouraging.
2003 has been another year of profit growth for Synstar, with adjusted earnings
per share up 6% to 3.6 pence. Sales of larger contracts and more long term
relationships have increased the order book by 56% in the past year. We have
also exceeded expectations for cash generation, ending the year with #26.9m of
net cash. The balance sheet has never been stronger and supports our maiden
dividend.
During the year we were troubled by the performance of our businesses in France.
This makes our negotiations for the disposal of this business all the more
important. Excluding France, operating profit from our business was up 30% at
#11.8m (2002: #9.1m). If completed, our disposal of this business will
represent a firm resolution of a difficult problem and leave in place a partner
with whom we can continue to develop our international customer relationships.
The successful outcome of our strategy has opened the door to an opportunity. We
have developed a capability to win and deliver Managed Services. The market for
this type of business is expanding, and our track record has developed well. We
can develop this into a major new profit stream. At the same time, we have
become concerned at the rate of margin erosion and price pressure in other parts
of our business. We have to take this opportunity quickly to keep our profits
secure in the long term. The actions we need to take will necessarily have a
detrimental effect on the coming financial year, particularly in the first half,
but the expected long term benefits are considerable. Our strategy has to
continue into the future, and this review explains how.
2003 review
The key feature of the year has been the growth of our ability to win larger and
more complex contracts. We have improved the key capabilities required for these
transactions. We are better able to understand the needs of our customers, and
to explain more complex propositions to our customers. We have become better at
combining several parts of our offering to produce a better, lower cost
solution. New Managed Service customers wins during the year have included
Cognotec (in Ireland), the UK Atomic Weapons Establishment (AWE), the Dutch
Ministry of Defence (DTO), a large UK private healthcare provider and the
Spanish Department of Health (CAM).
A Managed Services business must deliver excellent service as well. We must
deliver change programmes to make improvements to the way the customer
infrastructures operate. At AWE we have implemented a fundamentally new way of
managing the network so that service levels can be proactively managed. We need
to be able to take on staff from the customer and integrate them with our own
resources so that the new combination can be more effective. Our recent survey
from Investors in People has specially praised our skills in staff transfer. We
need to work effectively with partners, and Synstar has always been well known
for this - our business with CSC has expanded by 23% during the year. For all
these reasons, we are becoming an important force in the provision of Managed
Services.
At the same time, our existing services have prospered. Our many customers who
depend on us for Maintenance and Business Continuity remain the major part of
our revenue. Growth of these relationships has continued through the year. It is
particularly pleasing when these relationships are renewed or expanded in a
major way. We have agreed global contracts to provide Maintenance to Shell and
Reuters, both already significant customers.
The financial report shows that these plans have borne the most fruit in the UK.
But this is not solely a UK-centric success story. As an example, our business
in Spain has benefited in the last few months from a greater focus on fewer,
larger opportunities. Wins with the Health Service and Traffic Department have
brought new business worth about 4m euros per annum to the business and leads us
to expect improvement in Spanish profits during 2004.
Unfortunately not all our operations have had such a good year. The performance
of our French business has been very poor, especially in the second half of the
year. The reasons for this are covered in more detail later. In Belgium our
margin has declined because our largest customers have reduced their IT budgets
and the rate of project work has fallen off. Renewals have been achieved, but at
lower margin. In Germany, economic conditions have been very difficult. A lack
of new name sales and too much dependence on a weak product solutions market has
depressed the revenue. Our German business needs more attention on cost
reduction and management strengthening to improve the profits and drive some
growth. Some steps have already been taken, and we are investigating
opportunities to make more radical improvements.
Business Continuity has delivered another good performance. The revenue remains
strong, our margins remain high, and customers regard this service with growing
interest. We have expanded our capabilities with some careful investment during
the year. We have introduced the service to Germany with the opening of our new
Business Recovery Centre near Frankfurt. We have improved our capability in
other centres. Despite this investment, we have continued to increase our ROCE
in this business. For the future, we have new service offerings, expanding
Business Continuity into a fully-fledged high availability computing capability
- continuous computing whatever goes wrong. This solution has been tried
successfully with several customers, and is now being launched to existing
customers as a major expansion in service.
The year was rounded off with the signing of our largest ever contract (#200m) -
to provide Fujitsu Computer Services with maintenance logistics services. From
April 2005 we will deliver the right spares at the right time to Fujitsu
engineers all over Europe. Our solution uses our own logistics organisation,
which will treble in size as a result. This contract is a form of Business
Process Outsourcing - a new departure for Synstar. Most importantly, it shows us
able to construct this type of complex, leveraged, value based proposition.
Review of the marketplace
Synstar's services proposition is founded upon the three facts that we can:
a) Deliver it better than our customers can do it themselves.
b) Provide a range of matched services covering the whole infrastructure -
more than a niche provider.
c) Leave the customer in control of the part of the IT spend that really
adds to his competitive advantage - the applications.
In recent years, changes in the marketplace have made these features more
attractive to customers. Customers want fewer suppliers; those that remain must
be able to deliver a range of services. Life is getting harder for the niche
players. Customers want variable pricing - paying more when demand is high, less
in slack periods. Contracts are not won just by being cheap. Customers are more
wary of long term commitments involving large scale outsourcing. It is harder
for the big outsourcers to sell their huge, generic propositions. There is an
emerging space in the market for a range of services of good quality in an
offering that provides a clear return for the customer. This is where Synstar is
positioned.
Although there is a space opening for us in the market, we are not immune to
market pressures. As we renew our long term contracts, we are seeing a real
squeeze of margins. Sometimes we can resist this pressure by offering more
services or finding new ways to reduce cost. Sometimes, but not always. Nowhere
has this squeeze been more felt than in our maintenance business. Small scale
maintenance of PCs and printers is already at such a low price it is hard to
make a profit. This state of affairs will spread to other areas of maintenance
that have been a major source of our profit. We must expect that other parts of
our service offering will go the same way - product-based solutions and network
cabling for example. Our strategy's first three phases were designed to develop
Managed Services as a replacement. This is developing, but we are concerned that
the maintenance margin will decline faster than the Managed Services margin will
increase. Action is needed to accelerate.
To successfully respond to the evolving market we must address two fundamental
issues - our European business, and our ability to win Managed Services. I will
cover our plans for each of these in turn. Together, they represent the next
stage in strategy for Synstar - 'Phase 4'.
The European question
The multi-national dimension of Synstar's service offering has been a key
feature of our business in recent years. Infrastructure service providers with a
European reach appear to have an advantage over more local players. Some of our
large, multinational customers buy from us partly because we can deliver a
standard service in many different places. But this geographic reach comes with
a cost. Our business is quite complex, and the management controls needed are
costly. We have sub locations that are sub-critical. There is a trade-off
between the benefits of a wide reach and the cost of achieving it, and the
balance point of this trade off must be re-evaluated.
In addressing those parts of the group that are under-performing, we have tried
different solutions, with differing success.
One solution is to make an investment in focus and business development. Our
Spanish business has benefited from this approach. A new sales force,
development of some new services, and focussing of our sales resources on fewer,
larger opportunities have produced a major improvement in the business. In 2004,
this business will move from break even to a profit on the back of a series of
contract wins. Our Dutch and Irish businesses have responded in the same way to
a similar approach.
Elsewhere, we have used a model of presence in a country for delivery only.
Denmark is an example, where we deliver to a small range of customers without
the overhead of direct management, sales force or legal entity. In some
situations, this can be effective and low cost, while preserving the benefits of
service quality that membership of a large group can provide.
Despite our best efforts, we have been unable to be successful in some parts of
Europe. In past years I have taken the difficult decision to sell our businesses
in Italy and Switzerland. In each case, we have retained them as our appointed
subcontractors in those countries, and thus have been able to provide a seamless
and consistent service to our customers.
We are now in advanced negotiations to sell our business in France. We expect to
complete these negotiations, and the necessary works council consultations, in
the near future. To explain the reasons for this development, it is worth
explaining how our French business has performed recently. It is a long-term
loss making business. The revenue streams depend on project and product revenue
for over 50% of the revenue, areas that market conditions have hit hard. We have
a less well focused customer base in France, and the fixed cost of covering the
whole country with mobile engineers is onerous. The cost reduction measures to
address these issues are very difficult to carry out successfully in France, and
experience shows it is even harder to do this when the business is part of an
international group. All these reasons suggest that a smaller scale, locally
managed solution represents a better future for the business.
The disposal would follow a similar pattern to the two preceding transactions.
We will achieve the benefits of a clean break exit from a difficult business
making losses. At the same time have retained a local delivery partner that uses
our processes and is tightly bound into our delivery infrastructure. Synstar
France will continue as a close partner, an important component of our service
offering, but an independent one.
These disposals - in Italy, Switzerland and potentially France - have produced a
new sort of delivery capability in Europe. This 'Synstar Business Network'
represents a standardised delivery solution with wide geographic reach, while
avoiding some of the costs inherent in multinational organisations. I hope to be
able to expand this model in the coming years, to provide the same level of
integrated solutions to the widening requirements of our customers.
Phase 4 and beyond
We have made good progress over the last three years, and earned ourselves an
opportunity. From a background of business dominated by hardware maintenance, we
have built a genuine multi-service-line, Managed Services provider. The
opportunity is to continue to do so with a much higher level of commitment and
volume. We need to turn a series of exciting, different relationships currently
representing a minor part of our profit into the core of the business.
We also face a pressing need to accelerate this transition. We have seen a big
increase in price pressure in our core maintenance market. We must respond by
ensuring that we outpace this pressure by accelerating the rate of progress of
our Managed Services business. At the same time, we must continue to exit from
elements of our core maintenance offering when margins fall below an acceptable
level.
Synstar has faced this type of challenge successfully in the past. Business
Continuity was developed as a new revenue stream during the mid-nineties. This
has become a key part of our offering, delivering around half of our profit. It
replaced the profit stream derived from business that is now very low margin -
product fulfilment, the sale of consumables etc. We have exited these businesses
over the past two years.
We have now put together a compelling track record in the core elements of the
Managed Services offering - delivery to demanding service levels; transfer of
staff under TUPE; skills in network management and call handling; delivery of
upgrade projects to improve customer IT processes. We must accelerate our
capabilities in all of these areas to speed up the development of this profit
stream.
We shall invest in our technical and project management skills to deliver
transition projects and complex service delivery requirements together with the
sales and sales support skills needed to create these solutions for customers.
We shall invest in the senior management team needed to sponsor these high-level
customer relationships and manage the rate of change in the organisation.
Clearly, as we exit some parts of our maintenance offering, a part of the
investment will be to reduce the cost of delivery in those areas by retraining,
redeployment and in some cases the reduction of spend in those areas. As a
result we expect an operating exceptional charge of approximately #5m.
A three-part view of our business will emerge from the change. Firstly, Managed
Services and related large scale customer relationships will become the key
engine of growth for the company. We will develop this area with innovation,
good customer management and sales effort. Secondly, Business Continuity will
remain as a key element of our profit, and needs to be protected. This business
will be managed to keep margins high and customers satisfied - stability will be
the key requirement. Thirdly, the elements of our business with a more limited
future will be separated out and managed carefully to ensure that costs are
driven down and business is exited where the margins are too low. There will be
three parts of the business with three different business objectives.
It is never an easy decision to make an exceptional charge. The window to
exploit this opportunity is short. To delay - and delay would be required if
this investment were to be funded only from run-rate spending - would be to risk
failure to exploit our opportunity while we can. We believe that the return on
investment from this charge, represented by a better long term profit stream, is
worthwhile.
Summary
I joined Synstar nearly three years ago, and since then have seen many changes
in the company. Some aspects of our strategy have gone well, and others less
well. In retrospect, however, I think it would have been very ambitious to
predict at the start that by now Synstar would have signed one contract worth
#200m (with Fujitsu) and another worth over #100m (with CSC). Our order book
during this year has increased by 56%. We have shown our ability to compete for
Managed Services business with the most demanding customers against major
competitors. We have won this sort of business, delivered it successfully, and
made a profit doing so. This is progress of the best sort.
As our strategy matures, so we must now grasp the opportunity provided by our
successes in Managed Services, and considerably accelerate this part of our
business. This means redeploying skills, investment, assets and people to
develop this side of our business, and progressively reduce the emphasis on the
parts of our business with a limited lifespan. We don't have long to do this, so
our exceptional charge in the coming year is warranted to be sure we exploit the
opportunity to the full.
The heritage of any organisation is always a major factor determining its
future. Synstar has shown itself able to build upon a heritage of service based
on maintenance to build a strong capability for Business Continuity, and now for
Managed Services. The time is right to take the opportunity of that growth in
Managed Services to develop Synstar at a faster rate. We will pursue that growth
with the same vigour that produced the considerable progress over the past three
years. I look forward to the next three years expecting no less progress.
Steve Vaughan
Chief Executive
2 December 2003
Finance Director's Review
Introduction
The results for the 12 months to 30 September 2003 continue to demonstrate
improvement.
Although revenue has remained broadly flat year on year, operating profit has
increased 6% to #8.5m (2002: #8.0m). The Group is now generating interest
income of #0.2m (2002: nil) and the tax rate has been held at 32% (2002: 32%).
Net cash inflow before financing has increased 17% to #9.8m (2002: #8.4m) and
the business completed the year with #26.9m of net cash balances (2002: #16.4m)
Thus the Group is now in a robust financial position, one which provides a solid
foundation on which to continue developing its strategy.
As explained in Steve Vaughan's commentary Synstar is in advanced negotiations
to dispose of our French business. This follows the disposal of our Swiss
business in 2002. To provide better insight into what this means in terms of our
existing business excluding France, I have separated below the results of these
operations from the published numbers. Additionally, following a year on year 8%
appreciation of the average Euro exchange rate compared with Sterling, I have
then translated the 2002 continuing business results at the same rate of
exchange between Sterling and the Euro as has been used for the 2003 results.
This provides an overall better "like for like" comparison of the results.
Thus the results may be analysed as follows:
#'m 2002 2002 2002 2002 2003 2003 2003
Published France/ Existing Existing Published France Existing
Results Switzerland Business exc. Business exc. Business exc.
France France Results France
2002 2003 2003 2003
Exchange Exchange Exchange Exchange
rates rates rates rates
Revenue 221.9 18.8 203.1 208.2 223.0 16.4 206.6
Cost of Sales (163.6) (14.5) (149.1) 152.8 (163.4) (14.6) (148.8)
Gross Margin 58.3 4.3 54.0 55.4 59.6 1.8 57.8
% 26.3% 26.6% 26.6% 26.8% 28.0%
Selling and (12.2) (1.8) (10.4) (10.7) (12.2) (1.8) (10.4)
Marketing costs
Administration (38.1) (3.6) (34.5) (35.4) (38.9) (3.3) (35.6)
expenses
Operating profit / 8.0 (1.1) 9.1 9.3 8.5 (3.3) 11.8
(loss) % 3.6% 4.5% 4.5% 3.8% 5.7%
The commentary below is now focused on explaining the changes in the existing
business excluding France at constant exchange rates.
Revenue
Revenues have decreased very slightly, by #1.6m to #206.6m.
This has been driven by reductions primarily in project related Data Management
revenues in Germany which have then been partially offset by increasing Business
Continuity revenues.
Overall the percentage of total revenues represented by long-term contracts has
increased from 76% in 2002 to 78% in 2003.
Gross Margin
Gross margin has increased by 5% from 26.6% to 28.0% reflecting both the benefit
of rising Business Continuity revenues which attract relatively high margins
(being offset by lower margin Data Management revenues) and the impact of an
increased concentration within the business on cost control, in particular staff
and sub-contract costs.
Operating Expenses
Overall operating expenses (being Selling & Marketing costs and Administration
expenses) have remained essentially flat, with inflationary pressures being
offset by headcount and other cost controls.
Operating Profit
Arising from the above, operating profit before exceptional items has increased
by #2.5m to #11.8m, an improvement of 26%.
Operating margin on the same basis has increased very significantly, up by 27%
from 4.5% to 5.7%.
In terms of geography our operating profit can also be analysed as follows:
#'m 2002 2002 2003
2003 2003
Exchange rates Exchange rates
UK 9.5 9.5 13.7
Germany 1.4 1.5 (0.3)
Belgium 2.4 2.5 1.5
Holland 0.5 0.5 0.8
Spain 0.2 0.2 0.1
Central support costs (2.0) (2.0) (1.1)
Continental Europe 2.5 2.7 1.0
Central costs (2.9) (2.9) (2.9)
Existing Business exc. France 9.1 9.3 11.8
France (0.9) (1.0) (3.3)
Switzerland (0.1) (0.1) -
Total Operating Profit 8.1 8.2 8.5
The overall picture is of a strong UK performance up by 44% to #13.7m (driven
by revenue growth of 4% and improved cost control) partly offset by a
generally weak performance in the Continental European businesses , mainly
driven by revenue declines. Holland's profit increased by 60% to #0.8 m and
central support costs reduced by #0.9m to #1.1m.
Loss on disposal of discontinued operations
The loss on disposal of discontinued operations shown in the 2002 profit and
loss relates to the disposal of the contracts in the Swiss business which took
place on 1 March 2002.
Under the terms of the sale, Itris Maintenance AG acquired the contracts held by
Synstar Computer Services AG, the stocks of maintenance equipment, and
re-employed 41 of its staff. The consideration for the sale was a cash payment
of #0.4m. The exceptional item of #1.5m relates to the loss on the sale of the
business and associated costs.
The details of the impact of the expected disposal of our three French trading
entities, SCS France SA. Atelsi SA and SBC SARL will be disclosed as and when
final agreement has been reached.
Interest
As the underlying cash position continues to strengthen the Group has now moved
into an interest generating position receiving #0.2m in the full year (2002:
nil).
Taxation
Following the significant reductions in tax rate in 2001 and 2002 the tax rate
has been held at 32% for 2003 with the adverse impact from the French loss
position being offset by benefits arising from the successful resolution of past
tax issues.
In the event our French business is disposed of, a rate of around 33% on
continuing operations is expected for 2004. In the event it is not, then the
rate will be significantly higher.
Earnings per Share (EPS)
Earnings per share has benefited from the combined impact of increasing
operating profit and the generation of interest income.
Adjusted EPS has increased 6% from 3.4p to 3.6p this year. Basic EPS has
increased 50% from 2.4p to 3.6p.
Proposed Dividend
The Board proposes a final dividend for the year of 0.5p per share (#812,500)
(2002: Nil p) which, subject to shareholder approval at the Annual General
Meeting, will be paid on 20 April 2004 to those shareholders on the register as
at 26 March 2004.
Cash Flow and Net Funds
Cashflow from the business remains strong with #9.8m being generated (2002:
#8.4m). With the 8% strengthening of the Euro from 1.6057 Euro/# at 30 September
2002 to 1.4758 Euro/# at 30 September 2003 our Euro cash balances have also
increased in value when translated into sterling. This has generated a further
#0.7m.
The higher cash generation is driven by the increasing profits and an improved
working capital position.
The business remained ungeared at 30 September 2003 with net cash balances of
#26.9m (2002: #16.4m). As previously reported, the timing of payments from some
large customers heavily influences the cash balance at 31 March and 30
September. However the #0.2m interest income indicates that the Group has
maintained a net cash balance across the year.
Return on capital employed
Pre-tax return on capital employed has fallen slightly to 20% (circa 14% post
tax) driven by relatively low returns being earned on the increasing cash in the
balance sheet.
With a Weighted Average Cost of Capital (WACC) around 10% the Group is
comfortably value generating.
Summary
Despite essentially static revenue Group profit has been increased driven by
both an emphasis on cost control and focus on higher margin revenue streams.
The Group is now well positioned to continue the development of its strategy.
Stephen Gleadle
Finance Director
2 December 2003
Consolidated Profit and Loss Account
For the year ended 30 September 2003
2003 2002
Notes #'000 #'000
Turnover
Continuing operations 222,978 220,150
Discontinued operations - 1,720
Total turnover 1 222,978 221,870
Cost of sales (163,432) (163,558)
Gross profit 59,546 58,312
Selling and marketing costs (12,237) (12,188)
Administration expenses (38,793) (38,116)
Operating profit
Continuing operations 8,516 8,148
Discontinued operations - (140)
Total operating profit 1 8,516 8,008
Loss on disposal of discontinued operations 2 - (1,493)
Profit on ordinary activities before interest and taxation 8,516 6,515
Interest receivable and similar income 343 235
Interest payable and similar charges (143) (218)
Profit on ordinary activities before taxation 8,716 6,532
Tax on profit on ordinary activities 3 (2,818) (2,563)
Profit on ordinary activities after taxation and for the year 5,898 3,969
Dividends 4 (813) -
Retained Profit for the year 5,085 3,969
Earnings per share 5
Basic 3.6p 2.4p
Diluted 3.6p 2.4p
Adjusted Basic (before exceptional items) 3.6p 3.4p
The accompanying notes and statement of accounting policies are an integral part
of this consolidated profit and loss account.
Consolidated Statement of Total Recognised Gains and Losses
For the year ended 30 September 2003
2003 2002
#'000 #'000
Profit for the financial year 5,898 3,969
Currency translation differences on foreign
currency net investments 1,416 (81)
Total recognised profits relating to the year and since the
last annual report and accounts 7,314 3,888
The accompanying notes and statement of accounting policies are an integral part
of this consolidated statement of total recognised gains and losses.
Consolidated Balance Sheet
As at 30 September 2003
2003 2002
#'000 #'000
Fixed assets
Tangible assets 33,167 33,646
33,167 33,646
Current assets
Stocks 2,440 1,950
Debtors - amounts falling due within one year 49,777 51,432
Debtors - amounts falling due after one year 2,658 1,973
Cash at bank and in hand 26,922 17,431
81,797 72,786
Creditors: Amounts falling due within one year (69,317) (67,745)
Net current assets 12,480 5,041
Total assets less current liabilities 45,647 38,687
Creditors: Amounts falling due after more than one year (459) -
Net assets 45,188 38,687
Capital and reserves
Called-up share capital 1,625 1,625
Profit and loss account 43,563 37,062
Total shareholders' funds - all equity 45,188 38,687
Consolidated Cash Flow Statement
For the year ended 30 September 2003
Notes 2003 2002
#'000 #'000
Net cash inflow from operating activities 6 24,959 21,441
Returns on investments and servicing of finance 200 17
Taxation (1,637) (977)
Capital expenditure (13,711) (11,511)
Disposals - (546)
Net cash inflow before financing 9,811 8,424
Financing (814) (954)
Increase in cash in the year 8,997 7,470
The accompanying notes are an integral part of this consolidated cash flow
statement.
Statement of accounting policies
The accounting policies adopted are consistent with those in the most recently
published set of annual financial statements.
Financial statements
The financial information set out above does not comprise the company's
statutory accounts. Statutory accounts for the previous financial year ended
30 September 2002, have been delivered to the Registrar of Companies. The
auditors' report on those accounts was unqualified and did not contain any
statement under section 237(2) or (3) of the Companies Act 1985.
The directors of Synstar Plc are responsible in accordance with the Listing
Rules of the Financial Services Authority and applicable United Kingdom
Accounting standards for preparing and issuing this preliminary announcement.
Deloitte & Touche LLP have given an unqualified opinion on the accounts for the
year ended 30 September 2003, which will be delivered to the Registrar of
Companies following the Annual General Meeting.
Notes To The Financial Information
1. Segmental analysis
All turnover, operating profit and net assets were attributable to the Group's
principal activities and to Group companies located, and operating, within
Europe.
1a Turnover by Destination 2003 2002
#'000 #'000 #'000 #'000
Total Continuing Discontinued Total
UK and Republic of Ireland 146,735 141,453 - 141,453
France 16,940 16,967 - 16,967
Germany 23,952 26,744 - 26,744
Rest of Europe 35,351 34,986 1,720 36,706
222,978 220,150 1,720 221,870
1b Class of business
Turnover
Computer services 202,061 200,564 1,720 202,284
Business continuity 20,917 19,586 - 19,586
222,978 220,150 1,720 221,870
Operating profit
Computer services 8,485 8,627 (140) 8,487
Business continuity 2,947 2,441 - 2,441
Central expenditure (2,916) (2,920) - (2,920)
8,516 8,148 (140) 8,008
Net Assets
Computer services 23,163 24,973
Business continuity 1,904 2,919
Unallocated 20,121 10,795
45,188 38,687
1c Geographical segment
Turnover
UK and Republic of Ireland 148,762 142,467 - 142,467
France 16,383 17,051 - 17,051
Rest of Europe 57,833 60,632 1,720 62,352
222,978 220,150 1,720 221,870
Operating profit
UK and Republic of Ireland 13,761 9,490 - 9,490
France (3,327) (920) - (920)
Rest of Europe 998 2,498 (140) 2,358
Central Expenditure (2,916) (2,920) - (2,920)
8,516 8,148 (140) 8,008
Net assets
UK 19,034 20,698
Rest of Europe 6,033 7,194
Unallocated 20,121 10,795
45,188 38,687
Unallocated net assets consist of cash, tax payable, and other centrally held or
managed assets and liabilities
In relation to the discontinued operations in Switzerland, the profit and loss
comparatives for the year ended 30 September 2002 includes cost of sales
#1,160,000, gross profit of #560,000, selling and marketing costs of #149,000
and administration expenses #551,000.
2. Exceptional items
As reported last year, the Group disposed of its Swiss operations to ITRIS
Maintenance AG on 1st March 2002. Under the terms of the sale, ITRIS acquired
the contracts held by Synstar Computer Services AG, the stocks of maintenance
equipment, and re-employed 41 of its staff. The consideration for the sale was
a cash payment of #0.3m. The exceptional item of #1.5m relates to the loss on
the sale of the business and associated costs. The tax effect was #Nil.
The results of Switzerland in 2002 are disclosed as discontinued activities.
3. Taxation
Following the significant reductions in tax rate in 2001 and 2002, the tax rate
has been held at 32% for 2003 with the adverse impact from the French loss
position being offset by benefits arising from the successful resolution of past
tax issues.
4. Dividends
The directors recommend the payment of a dividend of 0.5p per equity share
(2002: nil) representing a charge of #812,500.
5. Earnings per share
Basic earnings per share are calculated in accordance with FRS14 Earnings per
Share, based on profit after tax of #5,898,000 (2002 - #3,969,000) and
162,500,000 (2002 - 162,500,000) ordinary shares, being the
weighted average in issue during the year.
Diluted earnings per share is the basic earnings per share after allowing for
the dilutive effect of options in issue. The number of shares used for the
fully diluted calculation is 163,080,000 (2002 - 162,977,000).
The adjusted basic earnings per share information has been calculated before
exceptional costs net of taxation and goodwill. The Directors believe this
additional measure provides a better indication of the underlying trends in the
business.
The calculations of the adjusted earnings per share are based on the following
profits:
2003 2002
#'000 #'000
Profit for the year for basic earnings per share 5,898 3,969
Exceptional items - 1,493
Profit for the year for adjusted basic earnings per share 5,898 5,462
Weighted average number of shares in issue:
2003 2002
Number Number
'000 '000
For basic earnings per share 162,500 162,500
Exercise of options 580 477
For diluted earnings per share 163,080 162,977
Reconciliation of basic earnings per share to adjusted earnings per share 2003 2002
Adjusted basic earnings per share (before exceptional items) 3.6p 3.4p
Basic earnings (loss) per share on exceptional items - (1.0p)
Basic earnings per share 3.6p 2.4p
Diluted earnings per share 3.6p 2.4p
6. Reconciliation of operating profit to net cash inflow from operating
activities
2003 2002
#'000 #'000
Operating Profit 8,516 8,008
Depreciation charges 14,090 14,302
(Increase) decrease in stocks (66) 919
Decrease (increase) in debtors 2,604 (4,343)
(Decrease) increase in creditors (185) 2,555
24,959 21,441
7. Analysis of net funds
Cash at Finance
Bank Overdraft Loans Leases Total
#'000 #'000 #'000 #'000 #'000
Balance at 1 October 2002 17,431 (178) (814) - 16,439
Cash flows during year 8,819 178 814 - 9,811
Foreign exchange 672 - - - 672
Other non-cash changes - - - 146 146
Balance at 30 September 2003 26,922 - - 146 27,068
This information is provided by RNS
The company news service from the London Stock Exchange
END
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