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RNS Number:7837H
ITNET PLC
21 February 2003
ITNET plc
Preliminary Results for the year ended 31 December 2002
ITNET continues to deliver good earnings growth and improved margins
ITNET plc, one of the leading IT, consulting and business process outsourcing
companies, announces strong preliminary results for the year ended 31 December
2002.
Year Highlights:
* Profit before tax* up 29% to #16.4m (2001: #12.7m)
* Operating margins* increased to 9.1% (2001: 7.5%)
* Earnings per share* increased by 26% to 15.9p (2001: 12.5p)
* Turnover up 1.4% to #179.0m (2001: #176.4m)
* Strong cash generation with the net cash position increasing by
#6.0m to #14.4m
* Dividend up by 10% to 3.87p (2001: 3.52p)
* Continued strong forward order book stands today at #295m
*Before amortisation and impairment of goodwill, and exceptional items
Commenting on the results, Bridget Blow, Chief Executive, said:
"The confidence that we expressed a year ago that we would see another good
performance in 2002 has been fully justified with the delivery of excellent
profit growth, against a backdrop of continuing economic uncertainty.
"During 2003, we intend to increase our investment in sales and marketing and in
the development of new services both to consolidate our strong market position
in Local Government and increase our market share particularly in Central
Government and our vertical Commercial markets."
Business Operating Highlights:
* Local Government business performance positions us as one of the
leading players in the Public Sector - the UK's fastest growing
Software and IT Services market. Continued strong demand for ITNET's
services has resulted in 20% growth in Local Government revenue in
2002, well ahead of industry growth rates.
* Commercial Sector contract wins during 2002 with new and existing
customers totalled #80m, covering a period of up to five years.
* Whilst overall Commercial Sector revenues decreased by 13% in 2002,
continued revenue growth was achieved in key vertical markets in the
Commercial Sector - 9% in transportation and 11% in utility and
services.
* Strong demand for SAP services across both the Public and Commercial
Sectors resulting in revenue growth of 44%.
* Continuing strength in the consultancy area with excellent revenue
growth of 28% for French Thornton.
New Contract Announced today:-
* Public Sector partnership with The London Borough of Richmond for ICT,
consultancy and e-government services. The contract is worth #36m
over ten years and begins immediately.
Bridget Blow, Chief Executive continued:
"Our Local Government business performance firmly positions us as one of the
leading players in the Public Sector - the UK's fastest growing Software and IT
Services market. We achieved excellent Public Sector revenue growth of 17% in
2002, added #71m to the Public Sector order book in 2002 and have a significant
pipeline of bid opportunities going forward.
"In the Commercial Sector where overall industry conditions remain difficult,
our vertical market strategy we established 18 months ago has been successful.
As well as revenue growth in two of our target sectors during 2002, we have seen
a growth of 12% in the Commercial Sector year end order book.
"We enter 2003 with no debt, a healthy order book and a leading position in the
growing Local Government market. We continue to have a strong sales pipeline in
our Local and Central Government markets. Overall, the Board anticipates another
good performance in 2003."
For further information:
ITNET plc
Bridget Blow, Chief Executive ) Tel: 020 7367 5100 (on 21 February 2003)
Robin Taylor, Finance Director ) Tel: 0121 459 1155 (thereafter)
Cubitt Consulting
Fergus Wylie Tel: 020 7367 5100
Peter Ogden
PRELIMINARY STATEMENT
Review of Operations
Public Sector
Business wins with new and existing customers have resulted in revenue growth of
17% to #100.6m in 2002 (2001: #86.0m). Whilst market analysts predicted Public
Sector IT services would grow at 9.6% during 2002 (Source: Ovum Holway), we have
exceeded this forecast demonstrating our leading position in the sector.
Contracts with new customers totalling #36m covering a period of up to 10 years
have been signed in 2002 across both Local and Central Government.
In this more competitive environment, maintaining customer relationships has
been increasingly important. We have won new business worth #35m spread over 10
years with existing customers which include Hertfordshire County Council,
Colchester Borough Council, the London Boroughs of Ealing and Hounslow,
Birmingham City Council, South Buckinghamshire District Council and the Foreign
and Commonwealth Office.
Our Public Sector order book continues to be strong standing today at #202m. In
addition, our conversion rate remains outstanding and we continue to win one out
of every three contracts bid for in this sector. These wins have been in the
area of IT solutions that transform an organisation's operations and meet the
market's focus on 'Modernising Government'.
Despite predictions that Government funding will cease in 2005 as the
Modernising Government initiative comes to an end, we are confident that
opportunities will continue to emerge until at least 2010. IT services will
continue to be in demand as 'joined-up' Public Sector services continue to
evolve. ITNET is firmly established as one of the leading players in Local
Government and with this reputation will be able to capitalise on growth
opportunities across both Local and Central Government.
A key differentiator in the Local Government market is our ability to build
successful branded 'add-on' services. Examples of these are our OneGov
portfolio of services, the recognised industry standard in this arena, which has
continued to win market share. During 2002, we won new contracts incorporating
OneGov with Braintree District Council and Colchester Borough Council. We have
also built our SAP services into a leading position in the Local Government
market. In 2002 we won a new SAP contract worth #7.2m with Staffordshire County
Council that is the largest UK SAP local authority implementation with 8,500
users. SAP services are also being provided in the new contract, announced
today at the London Borough of Richmond, to provide ICT, consultancy and
e-government services including the use of SAP Enterprise Portal technology
designed to transform the Council's intranet and website.
We have worked closely with a number of partners in 2002 and have secured a
number of contracts leveraging these relationships. We are working with NTL
supporting a community network for Cambridgeshire County Council and with
Catalyst in the consultancy market.
We believe one of the fastest growing opportunities in Local Government is the
National Programme for IT in the NHS. The Government is investing #2.3bn over
the next few years to 'join-up' the different Care organisations e.g. Health
Authorities and Social Services aiming to provide Councils with a single view of
its citizens. In January, we took advantage of this opportunity and announced a
new partnership with Leeds City Council, providing a range of 'OneGov' style
services, branded 'OneCare', targeted specifically at the growing Social Care
market.
We have agreed today revised arrangements with the London Borough of Islington
for the delivery of benefits and IT services. The revised contract is for IT
services only and reduces our year end order book by #15m. This contract will
be profitable from 2003, following losses sustained in 2002. We are pleased by
the way the new contract arrangements have been finalised and will work with
Islington Council to continue to improve services and build upon the existing
partnership.
As Central Government works towards achieving 'joined-up' Government, we have
increased our exposure and credibility in the market through consultancy
services and being able to provide strategic advice to Government Departments
and Agencies. Through our change and programme management consultancy, French
Thornton, work has started with a number of Central Government organisations,
developing business transformation programmes for the Department for Work and
Pensions (DWP) and the North East Regional Smartcard Consortium. We announced
our accredited supplier status with S-CAT, a catalogue-based procurement
facility for Central Government, earlier in the year. We have already secured
three new contracts via the S-CAT framework including work with the DWP, the
Office For National Statistics and the Foreign and Commonwealth Office.
Commercial Sector
Overall Commercial Sector revenue decreased by 13% in 2002 to #78.4m (2001:
#90.4m). Whilst some decline was anticipated given the decrease in the Easams
business, the depressed market conditions in the general Commercial Sector have
also had an impact. However, the vertical market strategy adopted 18 months ago
has been successful and we are securing new business wins in our target sectors
of transport and utility/services. As a result of these new wins, the
Commercial Sector order book today stands at #93m.
As transportation organisations start to investigate more effective ways of
operating to take advantage of Government funding, the sector has provided
exciting opportunities in 2002 with revenues increasing by 9%. One new
customer using ITNET's expertise in this area is First Group and there has been
additional business from our existing customer base at Transport for London. We
have also invested in the development of OneTransport for this sector. This
service aims to 'join-up' transport operations, reduce administrative costs,
refocus resources and deliver a more customer-focused and responsive solution.
The launch has been well received in the market and has resulted in a good
pipeline of opportunities.
In the utilities sector, we have secured new business wins with Bristol Water,
Electralink, the Electricity Supply Board (ESB) and Energy Power Resources
(EPRL), in addition to a new contract extension at Powergen. New contracts in
the membership services sector include Dun and Bradstreet and The
Mechanical-Copyright Protection Society-The Performing Rights Society. These
new contracts have contributed to an 11% increase in revenues.
The retail finance sector has proved the most challenging market in 2002 where
the customer trend of reducing costs and optimising existing IT investments
continues. Despite these challenges, we have signed three new projects with
Staffordshire, Norwich and Peterborough, and West Bromwich building societies to
implement security solutions and to provide windows 2000 migration design and
CRM solutions enhancing customer contact and service.
High levels of customer satisfaction are reflected in the significant number of
contract renewals and extensions together worth #56m covering a period of up to
five years. These include 3663, Centrica, Equitas, Powergen, Transport for
London, Travel Inn and the VA Tech Group. Two desktop and applications services
renewals were signed in 2002 with The Law Society and QBE.
Consultancy
Our change and programme management consultancy, French Thornton has achieved
strong revenue growth of 28% in 2002, primarily as a result of its diverse
sector experience. In 2002, it continued to exploit the buoyant Public Sector
market capitalising on opportunities in Central Government, where it has
undertaken strategic business transformation work.
French Thornton is currently working with the Post Office Limited's Banking
programme to deliver an online banking capability into every UK Post Office
branch in April 2003. French Thornton played a key role in the delivery of the
Banking programme, enabling the programme to reach critical milestones. Another
new project in 2002 was working with the Department for Work and Pensions
providing strategic support in the management of key supplier relationships and
the development of an updated strategic IT programme.
Results
Group revenues in the second half of 2002 increased by 9.2% over the first half,
to finish the year at #179.0m (2001: #176.4m). This increase was assisted by
the continuing strength of our Local Government revenues which grew by 20% year
on year and the solid progress of the Commercial vertical markets of transport
and services, which grew by 9% and 11% respectively. Overall, Commercial Sector
revenue decreased by 13% during the year to #78.4m (2001: #90.4m). The French
Thornton consulting business continued its strong performance, reporting a 28%
increase in revenues to #12.7m (2001: #9.9m).
Following a strong year in 2001, revenues from application services grew by 5.2%
to #45.0m (2001: #42.8m). A major contributor was the SAP business stream which
recorded a 44% increase. The infrastructure business remained flat year on year
at #99.9m (2001: #100.2m).
Margins continued to improve in 2002 through tight cost control, the efficient
utilisation of resources and a more profitable revenue mix. Headcount declined
by 2% and contribution per head increased by 26% for the total Group. In
addition, margins in French Thornton increased as a result of costs being lower
in 2002 because of the distorting effect of higher acquisition related bonuses
in 2001. We will continue our focus on cost control in all activities going
forward, although the increase in employers' National Insurance from April 2003
will clearly have an impact.
Operating profit* increased by 24% to #16.3m (2001: #13.2m). Return on sales
increased from 7.5% to 9.1% with improvements shown in both Public and
Commercial market sectors. Profit before tax* was up 29% to #16.4m (2001:
#12.7m). Profit before tax (post-goodwill amortisation, impairment and
exceptionals) was #7.3m (2001: #10.5m). Earnings per share* increased by 26% to
15.9p (2001: 12.5p).
*Pre-goodwill amortisation, impairment and exceptionals
The Directors are recommending a 10% increase in the final dividend to 2.66p
(2001: 2.42p) which will bring the total dividend proposed to be paid to 3.87p
(2001: 3.52p). The final dividend will, if approved by shareholders at the
Annual General Meeting on 22 May 2003, be paid on 30 May 2003 to shareholders on
the register at 28 March 2003.
Free cash flow for the year was # 9.1m (2001: #13.4m). The increase in cash
flows from operating profits was offset by increased accrued income in 2002 and
the positive and distorting effect in 2001 of 2000 tax losses and the proceeds
from the sale of the car fleet. The increase in accrued income primarily
reflects the application of our revenue recognition policy on contracts where
the customer pays for an outsourcing service evenly over a number of years
following the delivery of the business solution. Trade debtors remained under
tight control with days sales outstanding of 34 (2001: 35).
In accordance with best practice, the Board has reviewed the value of the
goodwill held on the balance sheet. An impairment charge of #4.0m was taken at
the half year on the basis of estimated future growth rates from Technosys. The
Board considers that the market for the e-commerce solutions expertise provided
by the Technosys organisation (absorbed into our Commercial Sector in 2001) has
weakened further and that it is appropriate to take an additional impairment
charge of #2.3m. The remaining net book value of goodwill relating to the
Technosys acquisition is #2.0m.
While the revenues due to the acquisition of Easams in 2000 were always expected
to decline, the reduction has been at a slower rate than anticipated.
Accordingly, these higher than anticipated revenues have increased the deferred
consideration payable and related goodwill by #1.0m. Given that all goodwill
from the acquisition is being written off by the end of 2003, an additional
amortisation charge of #0.7m has been incurred during 2002.
There was exceptional income of #0.8m which arose in the first half of 2002 as a
result of the movement in the ITNET share price since January 2000 and the
consequent reduction in amounts payable by ITNET under the French Thornton
earn-out agreement. At the year end, shares held in an employee share trust
were revalued against the year end share price resulting in an exceptional
charge of #0.7m.
The Group continues to account for pensions under SSAP24 and based on a
valuation date of 31 March 2002 there was an actuarial funding surplus of 120%
for our defined benefits scheme. Notwithstanding this, the Board maintained
higher than required contributions during 2002 in view of the falling equity
markets and, going forward, no increases in contributions are currently
anticipated. Using an FRS17 valuation basis, the deficit in the market value of
the scheme's assets compared with the present value of the scheme's liabilities
at 31 December 2002 was #7.6m, which compares to a surplus of #1.2m as at 31
December 2001.
Outlook
The Public Sector market continues to be buoyant. With our range of 'One'
branded services and our SAP business, we have successfully developed branded,
higher margin offerings that are well established in the Local Government space.
The Office of Government Commerce has announced its objective of seeing new
suppliers of all sizes entering the Central Government marketplace, and we are
encouraged by the pipeline of new business opportunities available to us in this
area.
In the Commercial market, the general environment has continued to be difficult
as customers maintain their focus on cost reductions to maximise their existing
IT investments. There is little evidence that demand for new IT initiatives
will increase in 2003. However, in this environment, which is likely to
continue for some time, the vertical market strategy which we adopted 18 months
ago, has proven to be effective and we are securing new business wins in these
target sectors.
We enter 2003 with no debt, a healthy order book and a leading position in the
growing Local Government market. We continue to have a strong sales pipeline in
our Local and Central Government markets. During 2003, we intend to increase
investment in our sales and marketing and in the development of new services
both to consolidate our strong market position in Local Government and increase
our market share, particularly in Central Government and our vertical Commercial
markets. Overall, the Board anticipates another good performance in 2003.
ITNET plc
Group Profit and Loss Account
For the year ended 31 December 2002
Before Before
Goodwill Goodwill Goodwill Goodwill
Amortisation, Amortisation, Amortisation, Amortisation,
Impairment Impairment Impairment Impairment As
and and and and restated
Exceptional Exceptional 2002 Exceptional Exceptional 2001
items items Total items items Total
#'000 #'000 #'000 #'000 #'000 #'000
Turnover 178,992 - 178,992 176,446 - 176,446
Cost of sales (146,564) - (146,564) (146,729) - (146,729)
Gross Profit 32,428 - 32,428 29,717 - 29,717
Other operating
expenses before
goodwill
amortisation,
impairment and
exceptional items (16,118) - (16,118) (16,532) - (16,532)
Goodwill amortisation - (2,834) (2,834) - (2,259) (2,259)
Goodwill impairment - (6,276) (6,276) - - -
Exceptional gain - 800 800 - - -
Exceptional loss - (705) (705) - - -
Total operating
expenses (16,118) (9,015) (25,133) (16,532) (2,259) (18,791)
Operating profit 16,310 (9,015) 7,295 13,185 (2,259) 10,926
Interest receivable 255 - 255 265 - 265
Interest payable (214) - (214) (724) - (724)
Profit on ordinary
activities before
taxation 16,351 (9,015) 7,336 12,726 (2,259) 10,467
Tax on profit
before exceptional
items (4,913) - (4,913) (3,855) - (3,855)
Tax on exceptional
gain - (240) (240) - - -
Profit on ordinary
activities after
taxation 11,438 (9,255) 2,183 8,871 (2,259) 6,612
Dividends paid and
proposed (2,806) - (2,806) (2,499) - (2,499)
Retained
profit/(loss) for
the financial year 8,632 (9,255) (623) 6,372 (2,259) 4,113
Earnings per share
- Before goodwill amortisation,
impairment and exceptional
items 15.86 12.54
- Exceptional items (0.20) -
- Before goodwill amortisation
and impairment 15.66 12.54
- Goodwill amortisation and
impairment (12.63) (3.19)
- Post goodwill 3.03 9.35
- Fully diluted 3.01 9.12
ITNET plc
Group Balance Sheet
As at 31 December 2002
2002 2001
#'000 #'000
Fixed assets
Intangible assets 14,105 23,015
Tangible assets 7,704 8,742
Investments 1,155 1,860
22,964 33,617
Current assets
Stocks and work-in-progress 1,122 1,319
Debtors (Note 3) 31,534 23,796
Cash at bank and in hand 16,715 12,352
49,371 37,467
Creditors
Amounts falling due within one year (Note 4) (51,989) (48,390)
Net current liabilities (2,618) (10,923)
Total assets less current liabilities 20,346 22,694
Creditors
Amounts falling due after more than one year (122) (1,553)
Provisions for liabilities and charges (500) (500)
19,724 20,641
Capital and Reserves
Called up share capital - equity 7,309 7,160
Shares to be issued - 3,750
Share premium account 31,980 28,673
Profit and loss account (19,565) (18,942)
Total shareholders' funds 19,724 20,641
ITNET plc
Group Cash Flow Statement
For the year ended 31 December 2002
2002 2001
#'000 #'000
Net cash inflow from operating activities (Note 5) 16,353 15,184
Returns on investments and servicing of finance 84 (388)
Taxation (3,198) (801)
Capital expenditure (4,092) (548)
9,147 13,447
Equity dividends paid (2,582) (2,243)
Cash flow before management of liquid resources and financing 6,565 11,204
Financing (2,202) (14,725)
Increase/(decrease) in cash equivalents 4,363 (3,521)
Reconciliation of net cash flow to movement in net cash/(debt):
Increase/(decrease) in cash in the year 4,363 (3,521)
Decrease in debt and lease financing 2,108 14,725
New loan notes (500) (825)
Loan note redemption 100 -
Change in net cash 6,071 10,379
Opening net cash/(debt) at 1 January 8,371 (2,008)
Net cash at 31 December 14,442 8,371
ITNET plc
Notes to the accounts
For the year ended 31 December 2002
1. Basis of preparation
The accounts have been prepared on the basis of the accounting policies
set out in the Group's Annual Report for the year ended 31 December 2002.
The financial information set out in the announcement does not constitute
the Company's statutory accounts for the years ended 31 December 2002 or
2001. The financial information for the year ended 31 December 2001
is derived from the statutory accounts for that year which have been
delivered to the Registrar of Companies. The auditors reported on those
accounts; their report was unqualified and did not contain a statement
under section 237(2) or (3) of the Companies Act 1985. The statutory
accounts for the year ended 31 December 2002 will be finalised on the
basis of the financial information set out in this preliminary
announcement.
Other operating expenses for 2001 have been restated to include only
Group administration costs not directly attributable to business
operations. This has resulted in a decrease of #818,000 in Other
operating expenses and an increase of #818,000 in Cost of sales.
2. Earnings per share
The calculation of earnings per share is based on an attributable profit
of #2,183,000 (2001: #6,612,000) divided by 72,116,270 shares
(2001: 70,744,906). The number of shares is based on the weighted average
number of shares in issue during the year excluding those held by the
QUEST which are treated as cancelled for earnings per share calculation
purposes.
The fully diluted earnings per share is based on 72,508,179 (2001:
72,508,015) Ordinary shares after adjusting for the full exercise of
outstanding Share Options.
3. Debtors
2002 2001
#'000 #'000
Trade debtors 19,407 18,880
Deferred tax 1,582 1,524
Prepayments and accrued income 10,545 3,392
31,534 23,796
4. Creditors - Amounts falling due within one year
2002 2001
#'000 #'000
Loan notes - issued 1,225 825
Loan notes - to be issued 500 500
Trade creditors 10,430 9,514
UK corporation tax 3,158 1,145
Other taxation and social security 5,850 5,966
Amounts due under finance leases 926 2,103
Accruals and deferred income 27,931 26,592
Dividend payable 1,969 1,745
51,989 48,390
5. Net cash inflow from operating activities
2002 2001
#'000 #'000
Operating profit 7,295 10,926
Exceptional loss 705 -
Exceptional gain (800) -
Depreciation on fixed assets 5,228 5,454
Amortisation and impairment of goodwill 9,110 2,259
Profit on disposal of fixed assets (1) (20)
(Increase)/decrease in debtors (7,680) 183
Decrease/(increase) in stocks 197 (978)
Increase/(decrease) in creditors 2,299 (2,640)
16,353 15,184
This information is provided by RNS
The company news service from the London Stock Exchange
END
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