UPDATED: Computacenter H1 2013

Earlier today Computacenter announced its results for the first half of 2013, to the end of June. At the Group level, revenue was £1.43bn, up from £1.42bn in the comparable period last year, while adjusted profit before tax was £26.2m - up 1.9%. That “adjusted” Group profit number refers to (among other things) a one-off provision of £10.7m for future losses on three “onerous” German contracts. However, Computacenter says it is confident these problem deals are now under control. The “adjusted” figure also refers to a non-cash impairment of goodwill and acquired intangibles in France of £12.2m, due to “deterioration in business performance”. Unlike Germany, the situation in France is something CEO, Mike Norris, is still trying to resolve.

The UK accounts for around 40% of Computacenter’s total business in revenue terms. It grew 2.4% to £592.1m in H1, and increased adjusted operating profit by 14.2% to £20.1m. The performance of the services business specifically was better, at 5.9%. Breaking that down further, Contractual services (29% of total services revenues) grew 4.4%, while Professional services (9%) grew 11.1%. The indications are that growth levels in Professional services will continue to remain strong as enterprises look to invest to modernise workplace environments with Windows 7 and Microsoft 2010 upgrades.

The 5.9% revenue increase in H1 is not in the same league as last year (see Computacenter’s “fantastic” first half services growth). And, since the close of FY12, the leadership team has been carefully managing expectations in the knowledge that growth in the services business would not replicate what was a very strong 2012 performance. Indeed, FY12 revenue growth of c15% took Computacenter into our Top 10 (by revenue size) infrastructure services supplier ranking for the first time. The company now sits at number nine with UK services revenues of £431m.

Double-digit growth of that order is pretty exceptional compared with other leading players. In fact, by our estimates, only two other Top 10 players in the market managed to grow their infrastructure services revenue at all last year: Atos (7%) and Dell (4%). Every other player saw revenues from infrastructure services decline (see Infrastructure Services Supplier Landscape 2013 for more analysis of the ranking players).

In all, the UK services ‘engine’ is motoring along well; margins have increased four years in a row, and Norris, tells us he expects the same to be true of this year. Revenue growth is expected to “pick up a little” in H2, with an early positive indication being two “substantial” wins that are expected to close in September. However, we would highlight the following potential threats for Computacenter:  

- Competition from India-heritage firms (e.g. TCS, Wipro, HCL) who are aggressively (and successfully) targeting 2nd and 3rd generation infrastructure services contracts

- Growing competition for cloud services, which compete with its C3 offerings, from a wide range of suppliers (e.g. telco, hosting, pure-play)

- Failure to counter the inevitable reduction in value of renewals in its contract base over time

- Costs associated with bidding for public sector business, and the impact on the bottom line

In addition, let us not underestimate the toughness of the infrastructure services market. We forecast that the market will be broadly flat for the coming few years at least, with significant declines in IT outsourcing and IT support – both of which are important markets for Computacenter.

Posted by Kate Hanaghan at '17:05' - Tagged: results