In the halcyon days before Brexit, takeover attempts, and COVID-19, HP made 1.3% pre-tax profit on sales at UK limb

PC giant blames restructure costs

HP made a 1.3 per cent pre-tax profit margin on total sales at its British trading outpost in 2019, according to a filing at Companies House.

Turnover for the year ended 31 October jumped to £1.644bn from £1.532bn in the prior year with higher sales rung out of the commercial PC unit as corporate customers opted to refresh estates with Windows 10 machines.

"The results were in line with company expectations," HP said. "The company is continuing to launch certain initiatives that aim to continue to drive the turnover growth in future years, improving our service delivery for higher quality and lower cost."

The results hark back to the halcyon days before Xerox top brass and activist investors began agitating for a merger with HP – which has been put on ice – and well before COVID-19 became a focus for the world.

Gross profit went up in the year to 7.8 per cent of sales, which HP attributed to a reduction in the cost of product purchasing – components – but said its profit-before-tax margin fell to 1.30 per cent from 1.52 per cent due to a hike in restructuring costs.

HP embarked on a savings programme in early October with a proposal to lay off 16 per cent of its 55,000-strong global workforce. This means up to 9,000 HP workers could be shown the door. Back-office corporate functions were said to be mostly in the firing line.

Under the same plan, HP authorised $5bn for future purchases of outstanding share in common stock: buybacks are a standard way for companies to ensure their share price doesn't sink. IBM has splurged tens of billions of dollars like this in the past decade.

The reason for this programme was a collapse in printer supplies sales – HP's most lucrative area.

Distribution and admin costs were higher in fiscal 2019 for HP, leading to an operating profit of £25.72m versus £27.22m in the previous financial year. Profit before tax was £25.68m, down from £27.2m. HP paid corporation tax of 19 per cent.

Average headcount for the year fell to 734 from 771. The biggest change came from sales and marketing, which was was 36 people lighter, and just one person down in the R&D department. Despite this, wages and salaries went up to £66.65m from £64.62m.

HP highlighted principal risks that have the potential to wreak havoc on its PC sales, namely economic cycles, consumer confidence, the growth of the economy and Brexit.

It said of the 2016 EU referendum: "While there is still uncertainty as to the timing and nature of the UK's exit from the EU, the impact due to Brexit depends on the macroeconomic environment and the company has strategic and operational plans in place to minimise such impact."

The profit and loss accounts for HP also highlighted the impact of COVID-19 in terms of "quarantines, facility closures, and travel and logistics restrictions in connection with the pandemic. While we expect this to be temporary, there is uncertainty around its duration and its broader impact."

Judging by all the sales data coming from analysts, the lockdown to contain the virus has directly led to massive demand for notebooks that allow workers to work remotely and students to study at home. If that level of demand is sustained, as Lenovo predicted it will be, HP UK should bank a better 2020. ®

Keep Reading

Biting the hand that feeds IT © 1998–2021