RNS Number:9069H
Morse PLC
25 February 2003
Embargoed for release 7.00am, Tuesday 25 February 2003
Morse plc
Interim Results
Six months ended 31 December 2002
Morse plc ("Morse" or "the Group"), the technology integrator, announces its
interim results for the six months ended 31 December 2002.
Financial highlights:
* Group turnover of #185.8 million (2001: #226.0 million)
* Professional Services turnover of #57.2 million (2001: #50.9 million)
* Infrastructure turnover of #128.6 million (2001: #175.1 million)
* Profit before tax, goodwill amortisation and restructuring costs
#7.8 million (2001: #9.4 million)*
* Loss before tax #4.6 million (2001: #3.4 million)
* Earnings per share before goodwill amortisation and restructuring costs
4.4p (2001: 5.2p)*
* Loss per share 5.3p (2001: 4.8p)
* Net cash balance at half year end of #83.5 million (2001: #60.3 million;
30 June 2002 #90.5 million)
* Inaugural interim dividend of 1p per share (2001: nil)
Operational highlights:
* Increased gross margin of 19.7% (2001: 17.8%)
* Cash generated from operations 220% of operating profits before goodwill
amortisation and restructuring costs (2001: 360%)
* Professional Services now represents 31% (2001: 23%) of Group revenue and
40% of Group gross profit (2001: 30%)
* Acquisition in Ireland in July 2002 and a further acquisition in the UK in
February 2003
* Market conditions unchanged
*Details of goodwill amortisation (our policy is to amortise goodwill on
acquisitions over three years) and restructuring costs are given in the profit
and loss account and a reconciliation of earnings per share before goodwill
amortisation and restructuring costs and loss per share is given in note 3 to
the accounts.
Commenting on the results, Richard Lapthorne, Chairman, said: "Trading
conditions have not improved but Morse has continued to generate satisfactory
profits and cash. As we expected, reduced customer spending has continued to
impact our Infrastructure business. However, our Professional Services business
continued to grow and now accounts for 31% of the Group's turnover and 40% of
the Group's gross profit."
Highlighting the announcement of an interim dividend he added, "In the context
of maturing IT markets, we believe that the income component now matters more in
total returns to shareholders and consequently we are using our strong financial
position to announce an interim dividend for the first time in our history. The
interim dividend is additional to any final dividend we may recommend at the end
of the financial year."
Duncan McIntyre, Chief Executive, added: "Morse has significant financial and
brand strength with a loyal blue-chip customer base who consistently commend the
services we deliver. We have a clear focus on business-critical computing and
have the highly skilled employee base to manage the existing and emerging
technologies in this area. Over the last two difficult years, these strengths
have helped us withstand a significant downswing in our Infrastructure business
while also enabling us to grow our Professional Services business. In the
current environment, although we retain our consistent focus on cash, costs and
efficiency, we recognise that there are opportunities for us to build the
business."
Enquiries:
Duncan McIntyre, Chief Executive
Gavin James, Finance Director
Morse plc Tel: 020 8380 8000
Giles Sanderson
Harriet Keen
Financial Dynamics Tel: 020 7831 3113
Overview
Morse's strong financial position and careful management of the cost base have
provided the conditions for us to continue to develop the business. The positive
change in shape shows that the strategy of increasing the proportion of services
in our mix and geographical replication of the business model remains as valid
and relevant today as in 1998 when we started out on this approach.
In the six months to 31 December 2002, Group turnover decreased by 18% to #185.8
million compared with the same period last year. Infrastructure turnover
decreased by 27% to #128.6 million; Professional Services turnover increased by
12% to #57.2 million. Profit before taxation, restructuring costs and goodwill
amortisation was 17% lower at #7.8 million. The loss before taxation was #4.6
million (2001: #3.4 million). The Group remains cash generative and produced a
net cash inflow from operations of #13.3 million (2001: #29.9 million). The
Group maintained its strong cash position with a net cash balance of #83.5
million at 31 December 2002 (31 December 2001: #60.3 million; 30 June 2002:
#90.5 million). The movement in the net cash position since 30 June 2002 is
primarily accounted for by the issue of #10.9 million of loan notes as deferred
consideration for the acquisition of Delphis, the initial consideration of #3.0
million for the purchase of SSI, and the #2.0 million cost of purchasing our own
shares.
In the context of maturing IT markets we believe that the income component now
matters more in total returns to shareholders. We have consequently decided to
utilise our strong financial position to declare an interim dividend of 1 penny
per share which we anticipate being part of a progressive dividend policy. The
interim dividend for the half year ended 31 December 2002 will be paid on 2
April 2003 to shareholders on the register as at the close of business on 7
March 2003.
We continue to develop our technology integration model and are seeing new
opportunities to build the business within both existing and new accounts.
Our key area of expertise is business-critical computing and in particular the
data centre, where we have focused our business development for the past ten
years. The data centre area has seen a significant decline in hardware spend in
the last two years and we believe expenditure here will continue to be tightly
controlled. This will clearly have an impact upon traditional infrastructure
business. However, over the same period, the data centre environment has begun
to develop in new areas including new initiatives in Organic IT, blade-centric
computing and the first tentative steps towards using Linux in these
environments. These developments are creating opportunities that match Morse's
technical skill set in business-critical computing.
We believe that our consistent focus on technology integration in
business-critical computing has created a robust business, as evidenced by the
growth in our Professional Services revenues at a time when Infrastructure sales
have declined substantially across the industry. Our integration model requires
us to continue to develop deep technical skills and to advance our understanding
of 'best of breed' technologies both internally and in partnership with other
technology providers. By continuing to provide an appropriate mix of software,
services, intellectual property and hardware, we are convinced that there is a
major opportunity for us to grow our market share and we are focused on
increasing our efforts to achieve that goal.
Infrastructure
Turnover in our Infrastructure business fell by 27% in the six months to 31
December 2002 to #128.6 million. Although the slowdown was slightly less than
the same period last year, sales have now fallen 52% since the six months ended
31 December 2000. This decline has been felt across the whole enterprise market,
and we do not believe we have lost market share in our key market verticals over
this period.
Sales of Sun Microsystems products fell by 36%, while HP sales fell by 32%. Our
IBM business, which began in 1999, grew by 3% to #29.9 million in the period. We
have continued to win market share from other IBM partners and in February 2003
we announced the acquisition of GSA, which will strengthen our capability by
adding new IBM i-Series (formerly AS/400) skills.
Professional Services
Professional Services turnover rose by 12% to #57.2 million for the six-month
period.
In the two-year period between 31 December 2000 and 31 December 2002 our
Professional Services business grew by 39%. With 714 staff at 31 December 2002,
Professional Services now employs approximately two times the number of people
working in our infrastructure business.
As businesses look to increase efficiency and manage costs effectively, they are
examining new ideas in the enterprise space such as Organic IT and using the
Linux operating system at the heart of their data centres. Our consultants are
enabling our clients to understand the value of these and other concepts working
in partnership with them demonstrating how changes in IT operations may deliver
lower costs of ownership.
Clients and geographies
Our two largest verticals - finance and telecommunications - continued to see a
slowdown in the first half. However our investments in broadening our reach
across other sectors have helped to grow general commercial business to #46.2
million (2001: #44.8 million) and our government business to #7.1 million (2001:
3.8 million). The largest sector remains finance at #74.9 million, accounting
for 40% of revenue. Telecommunications, at #44.7 million, became the third
largest sector and contributed 24% of revenue.
In the six months ended 31 December 2002 UK and Ireland turnover decreased by
20% to #131.3 million with operating profits falling 24% to #6.7 million. In
July 2002 we acquired SSI Computer Group, based in Dublin and Cork. This
acquisition is performing above expectations. Turnover decreased by 3% in France
to #25.6 million and the business recorded a reduction in operating loss to #0.3
million for the period (2001: #1.9 million loss) principally due to the 10%
headcount reduction made in the comparative period. In Germany turnover
decreased by 27% to #20.8 million with an operating loss of #1.0 million (2001:
#0.7 million profit). Headcount has decreased by more than 20% in Germany in the
period. Our Spanish business, acquired in September 2001, increased revenue by
19% to #8.1 million and recorded an unchanged operating profit of #0.6 million
when compared with the same reporting period last year. Additionally, as we
announced in our Q2 sales performance update, #1.0 million of restructuring
costs were incurred in the period which predominantly arose in Germany.
Processes and people
We have always recognised that Morse is a continually evolving business and that
we must continually adapt to new market conditions. During the last six months
we have continued to streamline our reporting structures across all geographies,
freeing up people to spend more time with our clients. We have appointed new
country managers for both France and the UK, with a brief to continue to drive
change across their respective areas of the business.
In this uncertain market it is the quality of our staff that is helping Morse
evolve into a stronger and more focused business. I would like to express my
warmest appreciation of their continued hard work and dedication.
Summary and outlook
Trading conditions have not improved but Morse has continued to generate
satisfactory profits and cash. As we expected, reduced customer spending has
continued to impact our Infrastructure business. However, our Professional
Services business has continued to grow and now accounts for 31% of the Group's
turnover and 40% of the Group's gross profit.
Morse has significant financial and brand strength with a loyal blue-chip
customer base who consistently commend the services we deliver. We have a clear
focus on business-critical computing and have the highly skilled employee base
to manage the existing and emerging technologies in this area. Over the last two
difficult years, these strengths have helped us withstand a significant
downswing in our Infrastructure business while also enabling us to grow our
Professional Services business. In a market that is unlikely to see substantial
growth in the foreseeable future and which increasingly faces issues of
over-capacity, we nevertheless see opportunities to win market share by
leveraging our existing strengths. At the same time our prudent management of
cash also enables us to reward shareholders with a higher dividend payment. For
the first time Morse has announced an interim dividend, which is additional to
any final dividend we may recommend at the end of the financial year
Richard Lapthorne
Chairman
Morse plc
Consolidated profit and loss account
for the six months ended 31 December 2002
Unaudited Unaudited Unaudited Unaudited Audited
Six months Six months Six months Six months
ended ended ended ended Year ended
31 December 31 December 31 December 31 December 30 June
2002 2002 2002 2001 2002
Existing Total Total Total
operations Acquisitions continuing continuing continuing
Note #'000 #'000 #'000 #'000 #'000
Turnover 2 180,043 5,796 185,839 226,001 465,180
Cost of sales (144,675) (4,576) (149,251) (185,762) (381,063)
Gross profit 35,368 1,220 36,588 40,239 84,117
Distribution costs (20,896) (498) (21,394) (22,595) (46,142)
Administrative expenses before
goodwill amortisation and
restructuring cost (8,947) (213) (9,160) (9,420) (16,623)
Amortisation of goodwill (10,339) (1,084) (11,423) (12,820) (24,382)
Restructuring costs 4 (1,041) - (1,041) - -
Administrative expenses (20,327) (1,297) (21,624) (22,240) (41,005)
Operating profit
before goodwill
amortisation and
restructuring cost 5,525 509 6,034 8,224 21,352
Amortisation of goodwill (10,339) (1,084) (11,423) (12,820) (24,382)
Restructuring costs 4 (1,041) - (1,041) - -
Operating loss (5,855) (575) (6,430) (4,596) (3,030)
Interest and similar income 2,223 - 2,223 1,510 3,545
Interest payable and
similar charges (379) (27) (406) (299) (639)
Loss on ordinary activities
before taxation 2 (4,011) (602) (4,613) (3,385) (124)
Taxation on loss on
ordinary activities 5 (2,420) (101) (2,521) (2,736) (7,722)
Receipt of tax 341 - 341 - -
Loss on ordinary activities
after taxation (6,090) (703) (6,793) (6,121) (7,846)
Dividends 6 (1,304) - (1,304) - (2,826)
Retained loss for the
financial period (7,394) (703) (8,097) (6,121) (10,672)
The notes form part of these financial statements.
Morse plc
Consolidated profit and loss account
for the six months ended 31 December 2002 (Continued)
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
Note 2002 2001 2002
pence pence pence
Loss per share
- basic 3 (5.3) (4.8) (6.1)
- diluted 3 (5.3) (4.8) (6.1)
Adjusted earnings per share before goodwill
amortisation and restructuring cost
- basic 3 4.4 5.2 12.9
- diluted 3 4.4 5.1 12.6
There are no differences between the results shown in the profit and loss
account and those on a historical cost basis.
The notes form part of these financial statements.
Morse plc
Consolidated statement of total recognised gains and losses
for the six months ended 31 December 2002
Unaudited Unaudited Audited
Six months Six months Year
ended 31 ended 31 ended
December December 30 June
2002 2001 2002
#'000 #'000 #'000
Loss for the period (6,793) (6,121) (7,846)
Translation difference in respect
of net investment in overseas
subsidiary undertakings 120 1,000 1,380
Total recognised losses in the period (6,673) (5,121) (6,466)
The notes form part of these financial statements.
Morse plc
Consolidated balance sheet as at 31 December 2002
Unaudited Unaudited Audited
31 December 31 December 30 June
2002 2001 2002
#'000 #'000 #'000
Fixed assets
Intangible fixed assets 33,254 53,303 38,308
Tangible fixed assets 6,766 9,812 7,981
Investments 556 858 556
40,576 63,973 46,845
Current assets
Stocks 15,653 29,752 20,581
Debtors: falling due within one year 98,062 109,046 102,067
Debtors: falling due after one year 8,412 6,841 9,210
Cash at bank and in hand 104,902 79,863 112,907
227,029 225,502 244,765
Creditors - amounts falling due
within one year (184,177) (187,295) (196,825)
Net current assets 42,852 38,207 47,940
Total assets less current liabilities 83,428 102,180 94,785
Creditors - amounts falling due after
more than one year (12,497) (16,582) (13,981)
Total net assets 70,931 85,598 80,804
Capital and reserves
Called up share capital 12,950 12,893 12,895
Share capital to be issued 1,008 3,568 2,909
Share premium account 70,332 68,994 68,104
Other reserves 2,210 3,440 4,390
Profit and loss account (15,569) (3,297) (7,494)
Total shareholders' equity funds 70,931 85,598 80,804
The notes form part of these financial statements.
Morse plc
Consolidated cash flow statement for the six months ended
31 December 2002
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2002 2001 2002
Note #'000 #'000 #'000
Net cash inflow from operating activities 7 13,310 29,853 67,960
Returns on investments and
servicing of finance
Interest received 2,223 1,510 3,545
Interest paid (406) (299) (639)
Net cash inflow from returns on
investments and servicing of finance 1,817 1,211 2,906
Taxation (2,034) (1,169) (5,873)
Capital expenditure
Purchase of tangible fixed assets (527) (2,799) (3,258)
Sale of tangible fixed assets 74 39 1
Net cash outflow for capital expenditure
and financial investment (453) (2,760) (3,257)
Acquisitions and disposals
Consideration for acquisitions in the period (3,204) (1,754) (6,022)
(Overdrafts)/net cash acquired with
subsidiary undertakings (488) (55) (55)
Payment of deferred consideration on
previous acquisitions (12,709) (1,126) (1,394)
Net cash outflow for acquisitions (16,401) (2,935) (7,471)
Equity dividends paid (2,776) (2,578) (2,563)
Net cash (outflow)/inflow before financing (6,537) 21,622 51,702
Financing
Issue of shares 75 - 12
Purchase of own shares (1,958) - -
Loans repaid 8 (45) (52) (97)
Net cash outflow from financing (1,928) (52) (85)
(Decrease)/Increase in cash 9 (8,465) 21,570 51,617
The notes form part of these financial statements.
Notes to the Financial Statements
for the six months ended 31 December 2002
1 Basis of preparation
The interim profit and loss account and cash flow statement for the six months
ended 31 December 2002 and the balance sheet as at 31 December 2002 have been
prepared on the basis of the accounting policies adopted by the company for the
year ended 30 June 2002 as set out in the Annual Report and Accounts.
The comparative figures for the financial year ended 30 June 2002 are not the
company's statutory accounts for that financial year. Those accounts have been
reported on by the company's auditors and delivered to the Registrar of
Companies. The report of the auditors was unqualified and did not contain a
statement under section 237(2) or (3) of the Companies Act 1985.
2 Segmental reporting
(1) Classes of business
The Group has one class of business, that of selling IT solutions.
(2) Geographic areas
Turnover and profit before tax together with net assets by country of origin are
set out below. There is no material difference between this analysis and an
analysis by geographic destination.
Net assets/(liabilities) Turnover (Loss)/profit before tax
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Six months Six months Six months Six months Six months Six months
ended ended ended ended ended ended
31 December 31 December 31 December 31 December 31 December 31 December
2002 2001 2002 2001 2002 2001
#'000 #'000 #'000 #'000 #'000 #'000
United Kingdom 46,241 66,868 125,624 164,523 (240) 331
Germany 18,503 12,910 20,779 28,373 (1,615) 812
France (7,830) (3,500) 25,576 26,304 (1,116) (4,014)
Spain 8,361 9,320 8,064 6,801 (1,039) (514)
Ireland 5,656 - 5,796 - (603) -
70,931 85,598 185,839 226,001 (4,613) (3,385)
SSI Computer Group Limited was acquired during the current financial year (hence
there are no comparatives for Ireland).
The analysis of turnover by geographic destination is not materially different
from that by country of origin given above. The prior-period segmental
reporting of net assets and profits has been restated to recognise goodwill and
its amortisation in the respective geographies. Previously, these amounts were
disclosed within the United Kingdom segment.
(3) Acquisition in period
On 16 July 2002 Morse Overseas Holdings Limited acquired SSI Computer Group
Limited, a computer supply and services company, based in Dublin and Cork,
Ireland for a maximum consideration of Euro9.35 million (#6.0 million).
3 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to
Ordinary shareholders by the weighted average number of Ordinary shares in issue
during the period.
For diluted earnings per share, the weighted average number of Ordinary shares
in issue is adjusted to assume conversion of all dilutive potential Ordinary
shares.
An adjusted basic and diluted EPS have been calculated in addition to the
disclosures required by FRS 14, since in the opinion of the directors this gives
shareholders a more meaningful measure of performance.
Reconciliation of the earnings and weighted average number of shares used in the
calculation are set out below:
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
31 December 2002 31 December 2001 30 June 2002
Weighted Weighted Weighted
average Per average Per average Per
number of share number of share number of share
Earnings shares amount Earnings shares amount Earnings shares amount
#'000 (thousands) pence #'000 (thousands) pence #'000 (thousands) pence
Basic EPS
Earnings attributable
to Ordinary shareholders (6,793) 128,596 (5.3) (6,121) 128,215 (4.8) (7,846) 128,568 (6.1)
Effect of dilutive
securities options - 1,624 - - 2,467 - - 2,742 -
Diluted EPS
Adjusted earnings and
shares (6,793) 130,220 *(5.2) (6,121) 130,682 *(4.7) (7,846) 131,310 *(6.0)
Basic EPS (6,793) 128,596 (5.3) (6,121) 128,215 (4.8) (7,846) 128,568 (6.1)
Effect of goodwill
amortisation 11,423 8.9 12,820 10.0 24,382 19.0
Restructuring cost
(net of tax) 1,041 0.8 - - - -
Adjusted basic EPS 5,671 128,596 4.4 6,699 128,215 5.2 16,536 128,568 12.9
Diluted EPS (6,793) 130,220 *(5.2) (6,121) 130,682 *(4.7) (7,846) 131,310 *(6.0)
Effect of goodwill
amortisation 11,423 8.8 12,820 9.8 24,382 18.6
Restructuring cost
(net of tax) 1,041 0.8 - - - -
Adjusted diluted EPS 5,671 130,220 4.4 6,699 130,682 5.1 16,536 131,310 12.6
* Since the conversion of potential Ordinary shares to Ordinary shares would
decrease net loss per share they are not dilutive. Accordingly, diluted
earnings per share is the same as basic earnings per share. The above
information in respect of diluted earnings per share is not that prescribed by
FRS 14 and is presented for memorandum purposes.
4 Restructuring costs
Restructuring costs of #1,041,000 relating mainly to headcount reductions, in
Germany and France, were incurred during the year as part of the restructuring
of those businesses.
5 Taxation
The interim tax charge is based on an estimate of the likely effective tax rate
for the full year expressed as a percentage of the expected result for the year
and then applied to the interim profit before tax.
6 Dividends
Six months ended Six months ended Year ended
31 December 2002 31 December 2001 30 June 2002
Pence per Pence per Pence per
share #'000 share #'000 share #'000
Dividends on:
129,491,390 Ordinary shares of 10p
Interim/final proposed 1.00 1,304 - - 2.15 2,826
7 Reconciliation of operating loss to net cash inflow from operating
activities
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2002 2001 2002
#'000 #'000 #'000
Operating loss (6,430) (4,596) (3,030)
Depreciation 1,999 1,937 4,212
Amortisation of goodwill 11,423 12,820 24,382
Provision against investments - - 301
Decrease in stocks 5,381 18,029 27,290
Decrease in debtors 6,556 12,844 17,954
Decrease in creditors (5,645) (11,142) (3,156)
Loss/(profit) on disposal of fixed assets 26 (39) 7
Net cash inflow from operating activities 13,310 29,853 67,960
8 Reconciliation of net cash flow to movement in net funds
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2002 2001 2002
#'000 #'000 #'000
(Decrease)/Increase in cash in the period (8,465) 21,570 51,617
Movement in loans 45 52 97
Loans acquired on acquisition - (26) -
Foreign exchange movements - (3) (27)
Loan notes 1,480 (3,135) (3,047)
Change in net funds (6,940) 18,458 48,640
Opening net funds 90,488 41,848 41,848
Closing net funds 83,548 60,306 90,488
9 Analysis of changes in net funds
At At
30 June Cashflow Other changes 31 December
2002 2002
#'000 #'000 #'000 #'000
Cash at bank 112,907 (8,005) - 104,902
Bank overdrafts (6,051) (460) - (6,511)
106,856 (8,465) - 98,391
Loan notes (16,265) 12,397 (10,917) (14,785)
Debt due within one year (103) 45 - (58)
90,488 3,977 (10,917) 83,548
The amount in "other changes" represents the issue in the period of loan notes
as consideration for the acquisition of Delphis (Holdings) Limited, which had
been deferred at the time of acquisition until predetermined targets had been
met.
10 Post balance sheet event
On 7 February 2003 Morse plc acquired Grantham Sutch Associates Limited and its
subsidiary Grantham Sutch Associates Technical Services Limited, a computer
supply and services group, for a net cash consideration of #3.1 million.
Independent review report by KPMG Audit Plc to Morse plc
Introduction
We have been engaged by the company to review the financial information set out
in the financial statements and notes and we have read the other information
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the company
for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual accounts except where they are to be changed in the next annual
accounts in which case any changes, and the reasons for them, are to be
disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/
4: Review of interim financial information issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 December 2002.
KPMG Audit Plc
Chartered Accountants
8 Salisbury Square
London
EC4Y 8BB
25 February 2003
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR IFFLLFRISFIV
