RNS Number:9750Q
Horizon Technology Group PLC
08 September 2005
Horizon Technology Group plc
Dublin: HOR.I London: HOR.L ADR OTC:HZNTY
Interim Results for the six months to 30 June 2005
20% growth in Profit before tax
8 September 2005, London and Dublin
Horizon Technology Group plc, a leading system integrator and distributor of
information technology products in the UK and Ireland, announces its interim
results for the six months to 30 June 2005.
Financial & Operational Highlights
* Profit before tax increased 20% year-on-year to Euro4.0 million.
* Enterprise Solutions turnover growth of 12% year-on-year and 25%
sequentially driven by market share gains in the UK and Ireland.
* The seventh consecutive half-year of growth in operating profit - adjusted
diluted EPS has increased by an average of 25% in each half-year period
since the first half of 2002.
* A 6% increase in gross profit was converted into a 20% increase in profit
before tax reflecting the opportunity for leveraging efficiency in the
business.
* New partnerships entered into with EMC Corporation, VERITAS Software
Corporation and Acer Corporation.
Commenting on the 2005 first half results, Gary Coburn, Horizon's CEO said:
"These results reflect excellent progress for the group. Good customer
satisfaction resulting in market share gains in the UK and Ireland, a
high level of control of costs and the addition of new vendor
partnerships have enabled Horizon to continue growth in profitability
for the seventh consecutive half-year period."
Cathal O'Caoimh, Horizon's CFO also commented:
"Horizon continues to deliver growth in earnings and real shareholder
value. A 6% increase in gross profit has been translated into a 20%
increase in profit before tax reflecting the group's sustainable
operating leverage - the ability to achieve earnings growth from greater
utilisation of operational capacity."
ABOUT HORIZON
Horizon Technology Group plc is a leading technical integrator and distributor
of information technology products in the UK and Ireland. For more information
about Horizon Technology Group plc, visit www.horizon.ie
FURTHER INFORMATION
Enquiries to Mark Kenny or Jonathan Neilan of K Capital Source at +353-1-631
5500 or horizon@kcapitalsource.com.
CHAIRMAN'S STATEMENT
for the six months to 30 June 2005
RESULTS OVERVIEW
Horizon had an excellent first half, achieving growth in profit before tax of
20% year-on-year and completing the seventh consecutive half-year of growth in
profitability. Adjusted diluted EPS has increased by an average of 25% in each
half-year period since the first half of 2002.
FINANCIAL SUMMARY Six months to Six months to
30 June 2005 30 June 2004 %
Euro'000 Euro'000 Change
Turnover 148,997 150,800 (1.2%)
Gross profit 17,403 16,363 6.4%
Operating costs 12,814 12,410 3.3%
Operating profit 4,589 3,953 16.1%
Profit before tax 4,024 3,357 19.9%
EPS (Diluted - Euro cent) 4.51 3.85 17.1%
EPS (Diluted adjusted - Euro cent)* 4.65 4.07 14.3%
* Adjusted for unwinding of discount factor.
Reflecting the distinct trends within the group's two operating divisions,
revenue fell 1% year-on-year and grew 14% sequentially. Revenue in the
enterprise solutions division increased 12% year-on-year and 25% sequentially
driven by market share gains in the UK and Ireland, while revenue in the
distribution and channel services division decreased 18% year-on-year and was
flat on the level achieved in the six months to December 2004.
The very strong performance in the enterprise solutions division drove gross
profit up by 6%. This gross profit growth was translated into a 20% increase in
profit before tax reflecting the group's opportunity to leverage sizable
earnings growth from greater utilisation of operational capacity.
This performance demonstrates the group's ability to consistently achieve its
financial objective of earnings growth that exceeds turnover growth, through a
strategy of effective market share gains, rigorous cost control and organic
development.
The group continued its focus on cost control and efficiency gains during this
period, limiting growth in operating costs to 3.3% year-on-year. Average
headcount in the six months to June 2005 was 211, an increase of 6.6% on the
same period last year and reflects an increase in revenue generating technical
consultants. Consultant utilisation inclusive of recent headcount increases
continues to be very high at around 90%.
Half-one operating profit increased 16% on last year and by 44% on 2003 and 86%
on 2002 reflecting the group's consistent performance. Horizon's first half
operating margin of 3.1% represents a significant increase on the 2.6% in the
corresponding period of last year.
The group's cash flow and financial position remains strong. Net debt at 30 June
2005 was Euro6.7m by comparison to Euro8.1m at the corresponding time last year.
Horizon retains significant financial capacity and has substantial unused credit
facilities available. Horizon's net debt is well within comfortable levels
representing less than one times annualised EBITDA and a debt / equity ratio of
22 / 78. Interest cover is 9.9 times.
The group continued its strategy of developing new partnerships with global IT
vendors. In the first half of 2005, the group entered into new partnerships with
EMC Corporation, VERITAS Software Corporation and Acer Corporation. The
establishment and development of such relationships is consistent with Horizon's
objective to deliver shareholder value through investment in selective areas of
growth and to focus on the provision of cost effective outsourcing services to
major international IT vendors. Such developments will provide the group with
incremental organic growth in revenue and earnings going forward. Horizon
continues to devote significant resources to enhancing such relationships.
MARKET REVIEW
The first six months of 2005 saw a continuation of the recovery in the IT market
that began about eighteen months ago. While corporate customers maintained their
cautious approach to IT capital expenditure, there were some signs of
growth-based investment particularly in the mobile element of the
telecommunications sector, traditionally an area of strength for the group.
There is intense competition in the market - both between IT vendors and within
the channel.
PC unit price depreciation has continued to be a significant trend in the
market, albeit at a lower rate than that experienced for the last two years, in
part due to the strengthening of the dollar in the first six months of 2005.
Industry unit volumes have grown to compensate and industry analysts expect that
unit growth will offset unit price depreciation in the foreseeable future.
Market demand for software and consulting services showed some improvement in
the first half of 2005, with evidence of several large corporate customers
beginning to invest for growth in the telecommunications, pharmaceutical and
finance sectors. Horizon benefited from this trend, particularly in application
development and business intelligence projects.
STRATEGY
Horizon's objective and strategy remains constant - to deliver shareholder value
through the development of the business as a technical integrator and
distributor of information technology products in the UK and Ireland. The
group's focus is to generate long-term, consistent growth in shareholder value
by investing resources judiciously to capitalise upon future growth
opportunities while maintaining a strong financial position.
Growth in earnings will be delivered by:
* Increasing revenues in each of its existing operations;
* Investing in organic bolt-on developments such as new partnerships with
global IT vendors in selective areas with growth potential
* Monitoring the developing IT market in the UK and Ireland to identify
opportunities for judicious acquisition: and
* Through a focus on execution, service delivery and operational gearing to
increase earnings at a faster rate than revenue growth.
Horizon's exposure to the Irish economy, where it generates nearly 44% of its
turnover, has been a significant strength in recent years. Geographically,
Horizon will continue to supply a wide range of IT services and products within
the Irish market and, in the UK, focus on the provision of enterprise solutions
in partnership with system integrators and leading global IT vendors.
OUTLOOK
The directors anticipate that the market recovery that began eighteen months ago
will continue and that there will be a greater level of growth-based investment
in technology by large corporate customers. This will vary by industry sector
and is likely to be strongest in the mobile communications sector in the next
twelve months.
Horizon's turnover growth will be dependent on market growth rates, the pace of
organic development and, increasingly, the extent to which major IT vendors
outsource to their channel. As the global vendors focus on their own internal
core competencies and cost reductions, they are increasingly outsourcing
technical services, marketing and supply chain functions to channel partners.
Horizon is uniquely positioned to address these emerging market trends.
Rigorous cost control and the group's ability to leverage growth in earnings
from greater utilisation of operational capacity provide opportunities to
convert anticipated turnover growth into superior returns for shareholders.
Samir Naji
Chairman
7 September 2005
OPERATING REVIEW
for the six months to 30 June 2005
DIVISIONAL ANALYSIS
The group operates through two separate trading divisions - Enterprise Solutions
division and Distribution & Channel Services division. The performance of each
division is detailed below.
ENTERPRISE SOLUTIONS DIVISION
This division assists customers in implementing IT strategies through the
provision of IT infrastructure, development and consulting services. Its
customer base is predominantly comprised of blue-chip companies. The division
includes the Irish and UK-based enterprise infrastructure and services (EIS)
businesses and the Irish enterprise application and services (EAS) business. It
has a current full time equivalent staff count of 158 employees.
Six months to Six months to Six months to
30 June 2005 31 Dec 2004 30 June 2004
Euro'000 Euro'000 Euro'000
Turnover 94,047 75,344 83,697
Operating profit 4,618 4,484 4,018
Operating margin 4.9% 6.0% 4.8%
The division's turnover, at Euro94m increased 12.4% year-on-year and 24.8% on the
second half of 2004. All businesses within the division posted turnover growth
both year-on-year and sequentially. While the fastest rate of growth occurred in
the Irish application consulting operation, the larger UK EIS business accounted
for the majority of the absolute increase in revenue.
The division's operating profit is up 15% year-on-year which is a reflection of
the seasonality of the sales mix within the division combined with rigorous cost
control. Revenue in the UK EIS business peaks in the first half of the financial
year pulling down the weighted average operating margin in the first half.
Typically, operating margin is higher in the second half when the higher-margin
application consulting business represents a greater portion of the division's
revenues.
The sectors of the market in which the group has seen growth over the last six
months include telecommunications, finance and electronics manufacturing.
Horizon achieved significant contract wins including eircom, Bank of Ireland and
Motorola Inc.
While there was unit price depreciation in the server market, particularly at
the high-volume lower end, it was not as prevalent as in the PC market. Market
volumes continued to grow as the penetration of computerisation percolated
deeper into commercial organisations. The combination of volume growth and price
depreciation has provided modest revenue growth in the overall market. Horizon
has out performed the market in both the UK and Ireland. In Ireland, the
division increased Sun Microsystems' penetration of the enterprise market. In
the UK, Horizon's market share has grown by winning a number of mid-range
infrastructure projects in partnership with global system integrators.
In January, the group entered into new partnerships with market leading vendors,
EMC Corporation and VERITAS Software Corporation thereby further strengthening
its position in the high-growth storage solutions market. Under these
partnerships, Horizon has begun providing a complete storage resource management
solution based on the EMC and VERITAS product suites, to existing and new
systems integration partners and customers. As anticipated, the two new
partnerships contributed modestly to revenues and earnings in the first half and
are contributing to an increasing pipeline going forward. The group continues to
invest in these developments and expects a growing contribution in future
periods.
The group's Irish enterprise applications and services operation continued to
achieve strong growth in revenue and profitability in the last six months with
the growth coming primarily from business intelligence and bespoke applications
development. Significant contract wins were achieved in the telecommunications
and pharmaceutical segments of the market, which have traditionally been strong
sectors for Horizon's EAS business.
Large project wins include eircom, Quinndirect, Wyeth Corporation and Musgrave
Group. The EAS forward order book at the end of June continues to be very
strong.
In 2004, the group entered into a partnership with BMC Software and established
a Business Service Management (BSM) unit within its Irish EAS business. This
unit provides a complete range of BMC Software services including sales,
consulting, implementation and support to existing and new BMC Software
customers. The new unit has made a solid contribution to results in line with
expectations.
DISTRIBUTION AND CHANNEL SERVICES DIVISION
Clarity Distribution is Ireland's leading value-added distributor of computer
and IT products. It offers leading edge supply chain management services to
resellers and to global technology vendors. This division operates in the Irish
market and has a current full time equivalent staff count of 49 employees.
Six months to Six months to Six months to
30 June 2005 31 Dec 2004 30 June 2004
Euro'000 Euro'000 Euro'000
Turnover 54,950 55,031 67,103
Operating profit 919 830 963
Operating margin 1.7% 1.5% 1.4%
Turnover in the distribution and channel services division decreased 18.1%
year-on-year and was flat on the level achieved in the six months to December
2004. In a highly competitive market, the division shifted its emphasis from
revenue and market share growth to focus on return on investment, thereby
forgoing business that provided lower returns. At the same time, the division
reduced its cost structure so as to recognise the maintainable level of revenue
and retain its cost leadership position. The result is a business with lower
revenue, an increased operating margin and a higher return for shareholders.
PC unit price depreciation has continued to be a significant trend in the
market, albeit at a lower rate than that experienced for the last two years -
the strengthening of the dollar in the first six months of 2005 provided some
relief. Price depreciation is likely to continue into the future particularly in
the PC market and at the lower end of the server market. Industry unit volumes
have grown to compensate and industry analysts expect that unit growth will
offset unit price depreciation in the foreseeable future.
Clarity's enterprise business continued to show strong growth in the period,
driven by the success of HP storage products in the Irish market.
Clarity is the cost leader within the Irish IT distribution sector and continues
to focus on systems development, as well as on cost control, to maintain its
position as the most efficient supply chain operator in the market. This cost
leadership provides Clarity with an excellent platform to further develop the
range of services it offers to global IT vendors and resellers.
In June, the division entered into a new partnership to provide distribution and
channel services to Acer in Ireland. Acer is first in notebook volumes in 13
EMEA countries and in the EMEA region as a whole. It ranks among the world's top
five branded PC vendors with the highest year-on-year growth rates among the top
ten vendors. While the implementation of this new project has been initiated, it
is too early to conclude on the extent of its long-term potential.
CONSOLIDATED INCOME STATEMENT
for the six months to 30 June 2005
Unaudited Unaudited Audited
Six months to Six months to Year ended
30 June 2005 30 June 2004 31 Dec 2004
Note Euro'000 Euro'000 Euro'000
REVENUE 2 148,997 150,800 281,175
Cost of sales (131,594) (134,437) (248,506)
________ ________ ________
GROSS PROFIT 17,403 16,363 32,669
________ ________ ________
Staff costs (8,000) (7,403) (14,606)
Other operating charges (4,360) (4,475) (8,518)
Depreciation (274) (375) (692)
Amortisation of intangibles (180) (157) (326)
________ ________ ________
OPERATING PROFIT 4,589 3,953 8,527
Finance costs (565) (596) (1,346)
________ ________ ________
PROFIT BEFORE TAX 4,024 3,357 7,181
Income tax expense 3 (767) (593) (1,445)
________ ________ ________
PROFIT FOR THE PERIOD ATTRIBUTABLE TO ORDINARY 3,257 2,764 5,736
SHAREHOLDERS
________ ________ ________
Earnings per share for the period 4
Basic 4.64c 3.93c 8.16c
Diluted 4.51c 3.85c 7.97c
Diluted adjusted* 4.65c 4.07c 8.43c
* Adjusted for unwinding of discount factor.
CONSOLIDATED BALANCE SHEET
at 30 June 2005
Unaudited Unaudited Audited
30 June 2005 30 June 2004 31 Dec 2004
ASSETS Euro'000 Euro'000 Euro'000
NON-CURRENT ASSETS
Property, plant and equipment 2,799 3,018 2,834
Intangible assets 10,530 10,454 10,716
Deferred income tax assets 445 392 410
__________ __________ __________
13,774 13,864 13,960
__________ __________ __________
CURRENT ASSETS
Inventories 17,120 18,538 17,135
Trade and other receivables 55,382 58,176 41,758
Cash and cash equivalents 7,192 11,876 9,571
__________ __________ __________
79,694 88,590 68,464
__________ __________ __________
TOTAL ASSETS 93,468 102,454 82,424
__________ __________ __________
EQUITY
CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANIES
EQUITY HOLDERS
Equity share capital 5,161 5,023 5,161
Share premium account 71,453 69,788 71,453
Other reserves 290 96 181
Retained losses (37,830) (43,915) (41,091)
Cost of shares in the company held in an ESOP (15,547) (15,547) (15,547)
__________ __________ __________
TOTAL EQUITY 23,527 15,445 20,157
__________ __________ __________
LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables 209 217 239
Provisions 2,027 2,620 2,629
__________ __________ __________
2,236 2,837 2,868
__________ __________ __________
CURRENT LIABILITIES
Trade and other payables 50,168 59,274 42,452
Income tax liabilities 2,517 1,157 1,756
Borrowings 13,807 19,860 14,059
Shares to be issued - 1,835 -
Provisions 1,213 2,046 1,132
__________ __________ __________
67,705 84,172 59,399
__________ __________ __________
TOTAL LIABILITIES 69,941 87,009 62,267
__________ __________ __________
TOTAL EQUITY AND LIABILITIES 93,468 102,454 82,424
__________ __________ __________
STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the six months to 30 June 2005
Unaudited Unaudited Unaudited
Six months to Six months to Year ended
30 June 2005 30 June 2004 31 Dec 2004
Euro'000 Euro'000 Euro'000
Profit for the period 3,257 2,764 5,736
Exchange difference on translation of foreign operations 4 (109) (257)
__________ __________ __________
Total recognised income and expense in the period 3,261 2,655 5,479
__________ __________ __________
GROUP STATEMENT OF CHANGES IN EQUITY
for the six months to 30 June 2005
Unaudited Unaudited Unaudited
Six months to Six months to Year ended
30 June 2005 30 June 2004 31 Dec 2004
Euro'000 Euro'000 Euro'000
At beginning of period 20,157 12,749 12,749
Total recognised income and expense in the period 3,261 2,655 5,479
Adjustment re share option expense 109 41 126
Shares issued during the period - - 1,835
Share issue costs - - (32)
__________ __________ __________
23,527 15,445 20,157
__________ __________ __________
CONSOLIDATED CASH FLOW STATEMENT
for the six months to 30 June 2005
Unaudited Unaudited Unaudited
Six months to Six months to Year ended
30 June 2005 30 June 2004 31 Dec 2004
Euro'000 Euro'000 Euro'000
OPERATING ACTIVITIES
Operating profit 4,589 3,953 8,527
Discharge of provisions for liabilities and charges (798) (1,853) (3,130)
Depreciation and amortisation 454 532 1,018
Loss/(profit) on sale of tangible fixed assets - 5 (2)
Share based payment expense 109 41 126
Increase in working capital (5,386) (14,439) (11,236)
__________ __________ __________
CASH OUTFLOW FROM OPERATIONS (1,032) (11,761) (4,697)
Interest paid (470) (449) (1,035)
Interest element of finance lease payments (7) (10) (21)
Corporation tax paid (36) (63) (346)
__________ __________ __________
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (1,545) (12,283) (6,099)
__________ __________ __________
INVESTING ACTIVITIES
Payments to acquire tangible fixed assets (220) (310) (464)
Proceeds from disposal of tangible fixed assets - 2 10
Payments to acquire intangible fixed assets (32) (44) (145)
Purchase of subsidiary undertaking net of cash acquired (191) (97) (2,133)
Sale of subsidiary 76 15 (33)
Interest received 13 24 34
__________ __________ __________
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (354) (410) (2,731)
FINANCING ACTIVITIES
Expenses on issue of ordinary share capital - - (32)
Capital element of finance lease rental payments (79) (79) (164)
__________ __________ __________
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (79) (79) (196)
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,978) (12,772) (9,026)
Currency translation differences relating to cash and cash (149) 235 (15)
equivalents
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD (4,488) 4,553 4,553
__________ __________ __________
CASH AND CASH EQUIVALENTS AT END OF PERIOD (6,615) (7,984) (4,488)
__________ __________ __________
NOTES TO THE INTERIM FINANCIAL STATEMENTS
for the six months to 30 June 2005
1. BASIS OF PREPARATION
The financial information presented in this Interim Report has been prepared in
accordance with the Group's accounting policies under International Financial
Reporting Standards (IFRS). The transition date for implementation of IFRS by
the Group was 1 January 2004. The financial statements for the six months ended
30 June 2004 and for the year ended
31 December 2004, which were prepared in accordance with accounting practice
generally accepted in the Republic of Ireland, have been restated under IFRS
with effect from the transition date.
Full details of the accounting policies adopted by the Group on implementation
of IFRS, and of the impact on the reported results and balance sheet of the
group of the transition to IFRS, were published on 30 August 2005 and are
available on the Group's website www.horizon.ie.
Approved IFRS
The Group's accounting policies under IFRS are based on the Financial Reporting
Standards and Interpretations issued by the International Accounting Standards
Board (IASB) and on International Accounting Standards (IAS) and Standing
Interpretations Committee Interpretations approved by the predecessor
International Accounting Standards Committee that have been subsequently
authorised by the IASB and remain in effect.
Furthermore, the financial information provided in this document is subject to
the issuance by the International Accounting Standards Board of additional
interpretations prior to the end of 2005, which may have retrospective impact
and thus require to be applied in the 2005 financial statements and the related
2004 comparatives. As a result, it is possible that further changes may be
required to the full year 2004 financial information contained in this document
prior to its inclusion as comparative data in the published 2005 year-end
consolidated financial statements under IFRS.
2. SEGMENTAL INFORMATION
Half year ended Half year ended Year ended
30 June 2005 30 June 2004 31 Dec 2004
Unaudited Unaudited
Segment Segment Segment Segment Segment Segment
Revenue Result Revenue Result Revenue Result
Euro'000 Euro'000 Euro'000 Euro'000 Euro'000 Euro'000
By Business Segment:
Enterprise Solutions 94,047 4,618 83,697 4,018 159,041 8,502
Distribution & Channel Services 54,950 919 67,103 963 122,134 1,793
Unallocated and Group eliminations - (948) - (1,028) - (1,768)
_______ _______ _______ _______ _______ _______
148,997 4,589 150,800 3,953 281,175 8,527
_______ _______ _______ _______ _______ _______
Segment Segment Segment
Revenue Revenue Revenue
Euro'000 Euro'000 Euro'000
By destination:
Republic of Ireland 64,908 74,625 146,260
Britain and Northern Ireland 82,232 76,068 134,695
Mainland Europe 1,798 107 214
Rest of World 59 - 6
_______ _______ _______
148,997 150,800 281,175
_______ _______ _______
3. TAX
The tax charge for the six months ended 30 June 2005 is based on the
effective tax rate, which it is estimated will apply to earnings for the
full year.
4. EARNINGS PER ORDINARY SHARE
Six months to Six months to Year ended
30 June 2005 30 June 2004 31 Dec 2004
Euro'000 Euro'000 Euro'000
The computation of basic and diluted earnings
per share is set out below:
Numerator
Profit after tax and minority interests 3,257 2,764 5,736
Unwinding of discount factor 101 162 325
__________ __________ __________
Adjusted profit before unwinding of discount factor 3,358 2,926 6,061
__________ __________ __________
Denominator
Weighted average number of shares in issue 70,263 70,263 70,263
for the period ('000)
Dilutive potential ordinary shares:
Employee share options 1,886 1,554 1,629
__________ __________ __________
Diluted weighted average number of 72,149 71,817 71,892
ordinary shares ('000)
__________ __________ __________
Earnings per share for the period
Basic 4.64c 3.93c 8.16c
Diluted 4.51c 3.85c 7.97c
Diluted adjusted* 4.65c 4.07c 8.43c
*Adjusted for unwinding of discount factor.
5. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Six months to
30 June 2005
Euro'000
Net decrease in cash and cash equivalents (1,978)
Cash outflow from debt financing 79
__________
Change in net debt resulting from cash flows (1,899)
Translation adjustment (150)
__________
Movement in net debt in the period (2,049)
Net debt at beginning of period (4,682)
__________
Net debt at end of period (6,731)
__________
6. PUBLICATION OF NON-STATUORY ACCOUNTS
The financial information contained in this interim statement does not
constitute statutory accounts as defined in section 19 of the Companies
(Amendment) Act, 1986. The financial information for the full preceding
accounting period is based on the statutory accounts for the year ended 31
December 2004.
7. APPROVAL OF ACCOUNTS
The board of directors approved the unaudited interim accounts on 7 September
2005.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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