Emphasis on service requires sacrifices at Computacenter

The first half of the year saw Computacenter suffer growing pains, particularly in Germany, but it is putting its hand in its pocket to ensure it does not suffer a G4S-style delivery failure.

"The challenge of implementing multiple contracts simultaneously and delivering what our customers want, is leading us to spend an incremental £7m on additional staff and related costs to ensure our future success," revealed Greg Lock, Chairman of the provider of information technology (IT) infrastructure services and solutions.

After first half headline profit before tax dropped to £24.0m from £26.6m the year before, primarily because of the impact of start-up costs associated with new business wins, the group is hoping this is a case of taking a step back in order to take several steps forward in the future.

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Strategically speaking, the group's increased emphasis on growing its Contractual Services base appears to be paying off, with the group seeing double-digit percentage organic revenue growth (in constant currency terms) in Services in all countries.

"The growth in our constant currency Contractual Services base of 9.4% to £595.0m (H1 2011: £544.0m) is at a strategic level, very positive and has already helped performance in the UK during the period, with a more material contribution to come in the second half of the year and beyond. In addition, the current pipeline in the UK is particularly strong, which bodes well for contract base growth in the second half of the year," Lock revealed.

In the UK, Services revenue grew 14.2% year-on-year (yoy), a sharp acceleration from the 0.7% yoy gain in Services revenue in the first half of 2011.

In contrast, the IT supply chain market has been relatively flat, resulting in only a marginal improvement in Supply Chain revenue for Computacenter in the UK.

Germany saw revenue increase by 7.5% to €718.7m from €668.6m the year before, with Services revenue up 16.0% to €240.1m. Somewhat surprisingly, the German employment market is not rife with candidates who have the specialist skills Computacenter is looking for to handle the clutch of business wins it landed in the second half of 2011, but nevertheless the company is making a significant investment in additional people to deal with the increased workload.

Total revenue in France, including recent acquisition Top Info, increased by 9.0% in constant currency to €275.8m from €253.1m, but the comparator only includes Top Info revenue for the second quarter of 2011. If the full half-year 2011 revenue is included, there is a revenue decline of 4.0%.

Services revenue over the period, in constant currency terms, including Top Info for the whole of the first half of both 2011 and 2012, increased by 15.6%. This growth has been driven by the contracts won last year, and as in Germany - although to a lesser extent - the increased volume of orders has led to "some challenges, but all the new contracts have the potential of delivering improved profitability as they bed in."

The Belgium and Netherlands operations saw revenue grow 54.3%, but for once Services revenue growth was below par, at 35.8%.

Mike Norris, the Chief Executive of Computacenter, did warn that the group is likely to see slower top-line Services growth outside of the UK "as we put our processes in order" but on the bright side margins from this quarter should improve,

"The new Services business momentum we have built in our UK Services business looks set to continue into the second half and beyond," Norris predicted, suggesting that the group's strategic shift from "box-shifter" to "solutions provider" has been a sound one.