Computacenter

Interim Results Announcement

07/09/04

Computacenter plc, the European IT infrastructure services provider, today announces interim results for the six months ended 30 June 2004.

Financial Highlights
•  Group revenues unchanged at £1.25 billion
•  Profit before tax up 3.7% to £33.2 million (2003: £32.0 million)
•  Earnings per share up 6.8% to 12.6p (2003: 11.8p)
•  Interim dividend increased to 2.3p per share (2003: 2.0p)
•  Strong operating cashflow and balance sheet with net cash of £62.4 million


Operational Highlights
•  UK Managed Services revenue growth of 18.7% (2003: 12.3%)
•  Encouraging pipeline of Managed Services opportunities
•  Further product price decline, though not as severe as 2003 as a whole
•  Continuing programme of operational improvements in Germany and France



Ron Sandler, Chairman of Computacenter plc, commented -
'Computacenter continued to make steady progress in the first half of 2004. Our Managed Services revenues in the UK grew by 18.7% in the period, and we secured a number of significant new contracts.'

'The outlook for the full year remains in line with market expectations. Looking further ahead, the core UK franchise remains healthy, with continued growth prospects in Managed Services. We are working hard to deliver the turnaround of our European operations. With a strong balance sheet and a cash generative business, we have confidence in our future prospects.'



For further information, please contact:
Computacenter plc.
Mike Norris, Chief Executive 01707 631 601
Tessa Freeman, Investor Relations 01707 631 514
www.computacenter.com

Tulchan Communications 020 7353 4200
Julie Foster/ Tim Lynch
www.tulchangroup.com

High resolution images are available for the media to view and download free of charge from www.vismedia.co.uk


Chairman's Statement

Computacenter continued to make steady progress in the first half of 2004.

A core part of our strategy in recent years has been to develop and grow our higher margin services businesses, with a particular emphasis on contracted desktop Managed Services. This continues to progress well. Our Managed Services revenues in the UK grew by 18.7% in the period, and we secured a number of significant new contracts.

We began to see modest signs of recovery in corporate IT capital expenditure, particularly in the UK . However, continued product price erosion, driven by intense competition between vendors has counteracted the impact of higher volume sales, and kept product margins under pressure.

Against this background, I am pleased with overall Group performance. In the first half of 2004, Computacenter delivered increased profit before tax of £33.2 million (2003: £32.0 million) on unchanged revenues of £1.25 billion (2003: £1.25 billion). Earnings per share for the period grew 6.8% to 12.6p (2003: 11.8p). The balance sheet remains strong, with £10.6 million of cash generated during the period, and net cash of £62.4 million at the period end.

Reflecting our policy of seeking to keep the interim dividend at a level equal to one-third of the preceding year's total dividend, Computacenter has approved an interim dividend of 2.3p per share (2003: 2.0p) on 15 October, 2004 to shareholders on the register as at 17 September, 2004.

We are continuing to take steps to reduce the cost base and improve the efficiency of our core Technology Sourcing activities. We are also leveraging our longstanding investment in logistics and warehousing by successfully extending our reach to the small and medium-size business sector, providing a sales model tailored for organisations of less than 2,000 employees.

CC CompuNet, our German subsidiary acquired in early 2003, saw operating profit decline to £2.5 million (2003: £3.2 million). This is attributable to market conditions. The programme of integrating CC CompuNet into the Group has continued well and we have made further investments in financial systems and logistics technology to ensure a basis for future profit growth.

The financial performance of Computacenter France remains a challenge, with an operating loss of £1.5 million (2003 loss: £1.7 million) in the period. Costs have been reduced, management changes have been made, and we continue to devote considerable time and attention to improving the performance of the business. Much remains to be done, but I am confident that these measures will produce positive results.

The outlook for the full year remains in line with market expectations. Looking further ahead, the core UK franchise remains healthy, with continued growth prospects in Managed Services. We are working hard to deliver the turnaround of our European operations. With a strong balance sheet and a cash generative business, we have confidence in our future prospects.

As ever, it is the staff of Computacenter who are responsible for the continuing success of the Group and to whom I should like to express my appreciation for all their hard work and commitment.



Review of Operations

UK
Computacenter's focus on providing a range of infrastructure services to complement its customers' in-house IT capabilities continued to be well-received by the market, with H1 2004 UK operating profit growing by 2.4%, from £31.4 million to £32.2 million.

Market conditions remained challenging. We saw an increase in IT expenditure from financial services organisations, although this only served to offset a decline in central government department spending. The principal feature of the market in H1 was the continuation of intense price competition in our Technology Sourcing business, driven by the increasing commoditisation of computer products. We are seeking to address this long-term trend and protect our margins through the further streamlining of our sales process, improving efficiency and reducing costs.

Our profit growth in the period owes much to the continued success of our Managed Services business, which has grown steadily in recent years irrespective of general market conditions. Our Managed Services revenues increased by 18.7% in H1 2004, compared with overall growth of 10.9% in 2003. Managed Services successes included the award of a significant contract with a leading investment bank. This contract is valued at £15 million over three years and covers 4,500 users in the UK and a further 1,000 across Europe . Computacenter will be responsible for a range of services including request management, the provision of on-site helpdesks, and desktop and server maintenance. We were also awarded a Managed Services contract by Henderson Global Investors, a leading international investment management company, for desktop and server maintenance covering approximately 1,000 users.

We were successful in winning a number of significant extensions to existing Managed Services contracts. These include BAA, where we were awarded additional business worth £1.2 million per year on our current five-year contract. Under the terms of the contract, which has now been extended to 2010, we will provide an increased on-site service, including second-line user support.

We have an encouraging pipeline of Managed Services opportunities for the remainder of the year, which bodes well for sustained contracted revenue growth in 2004 and beyond.

We saw a weakening of demand for Infrastructure Integration projects. However we are currently in the discovery and planning phases for a number of large integration projects and there are signs that the continuing product price decline is helping to stimulate demand for these services. Major Infrastructure Integration wins in the first half of the year include the UK Government's Prescription Pricing Authority, for which we deployed a consolidated enterprise storage, server and support solution.

Due to intense competition, the market experienced continuing price erosion, although this was not as severe as for 2003 as a whole. As a result, overall product revenues declined by 1.2%. However, we delivered a record number of servers in H1 2004, with volumes increasing by over 50% on H1 2003, as organisations sought to establish sound IT infrastructures for Microsoft XP deployments. Significant Technology Sourcing successes included a contract with Scottish Power to supply enterprise technology worth approximately £7 million over three years.

Revenues of CCD, our trade distribution division, declined by 5.1%, due mainly to rebates now being claimed by customers through CCD rather than direct to vendors. However this has had no impact on CCD profitability.

RDC, our re-cycling and re-marketing arm, recorded its best ever half-year profit performance. Following on from RDC's success, we have invested in new premises and internal IT infrastructure, to help consolidate its position as a leading UK provider of end-of-life IT asset management.


Germany  
CC CompuNet operating profit declined to £2.5 million (2003: £3.2 million) on revenues that were 1.3% lower than in H1 2003. Even allowing for the continuing weakness of the German market, we were disappointed not to see the successful integration of the business deliver further revenue growth in the first half. However we are broadly satisfied with our progress in Germany and continue to invest in initiatives, such as enhanced financial management systems and logistics technology, designed to establish a basis for future profit growth.

Consistent with our approach of seeking to share senior management expertise across the Group, we appointed Colin Brown as CEO of CC CompuNet during the period. Colin previously ran the highly successful UK Government business.

Significant recent successes in Germany include the renewal of our Managed Services contract with BMW Group for three years. We also won a two-year extension on our running contract with BMW Group for Helpdesk and Desktop Managed Services, which has resulted in significant service improvements and cost savings for the client.

In H2 2004, CC CompuNet will be renamed Computacenter.

France
Our French business saw revenue decline of less than 1% compared to 2003 and operating losses, excluding the release of positive goodwill, declined to £2.0 million (2003: £3.8 million). Including positive goodwill, the loss decreased to £1.5 million (2003: £1.7 million).

Whilst the profitability of our French operation remains unsatisfactory, we have succeeded in reducing operating costs and the measures we have put in place to restore Computacenter France to profitability are beginning to take effect. As part of a major French transformation project, we are focusing on our three core French businesses of product logistics, implementation and maintenance. In these areas we are seeking to improve service levels and delivery times, developing our capability for large project roll-outs and investing in training to ensure we have the right mix of skills to support future growth. Many of these initiatives employ best practices that have already proved successful in the UK, and UK management is increasingly involved in their implementation.

We continue to review our cost base and are putting in place improved mechanisms for business reporting. We are also in the process of introducing customer satisfaction measurement, already in place for sales functions, across the business. In general, we are seeking to introduce a more customer-focused culture, in which employees are more directly accountable for performance. However, it is apparent that this is a long-term project with no quick fixes, and we do not expect a return to profit this year.

Computacenter France continued to win significant new business. This included a Managed Services contract with Aventis Pasteur, covering 4,000 users in France and 700 worldwide, Infrastructure Integration consultancy for the French government's Agence Centrale des Organismes de Sécurité Sociale, and a major laptop and server roll-out for Renault Europe Automobiles.


Other businesses
Our Austrian business showed improved performance on H2 2003, securing some important new business. This included an extension of its existing services management contract with BAWAG-PSK, a leading Austrian bank, to cover the roll-out and ongoing support of 4,500 desktop PCs. We also won a contract with Kremsmüller, Austria 's leading supplier of engineering and contracting services, for the migration of its entire infrastructure to a common Microsoft platform.

We were pleased with the performance of our Belgium and Luxembourg (BeLux) operation, which became profitable in the first half of the year. Operating profits grew to £68,000 on the back of strong revenue growth of 55.4%. Our success was in part due to our strengthening ability to work together across the Group to win multi-national business out of BeLux. For example, close co-operation between the BeLux and UK operations was instrumental in securing a major Technology Sourcing contract with BT Global Services.


Business development
The Group continues to invest in systems and processes to support business growth. The market for infrastructure services continues to be challenging, but our investment in Managed Services is driving the business forward.

The next version of our integrated Services Management Tool Suite (SMTS v3.0), which we use to track and manage customer support requests, will begin to be deployed with UK Managed Services customers next year and will ultimately be made available across the Group. SMTSv3.0 will significantly enhance our Managed Services offering, improving our ability to audit and manage our customers' technology assets on their behalf.

In our Technology Sourcing business we are making good progress in extending our market coverage to the small and medium-size business sector, using a 'light-touch' sales model for organisations of less than 2,000 employees. We have also embarked upon a major upgrade of our e-commerce capability that will make our product sales far more web-enabled.

Overall, I am satisfied with Group performance in the first half. We will continue to take advantage of the many opportunities we see in the market whilst maintaining a rigorous control over our cost base.

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