IT infrastructure services provider Computacenter has issued a profits warning today, which it said was due to “significant new business wins” leading to “additional start-up costs”.
Mike Norris, CEO of Computacenter, said: “While we highlighted the necessity for investment in our statement of 18 April 2012, both the size and scope of the opportunities we have won have increased significantly, requiring us to invest further.”
The investments are likely to amount to £7 million more than previously expected, and a further £3 million if the depreciation of the euro against the sterling remains at the current level, the company said in a trading update.
Computacenter said that its infrastructure services revenue growth is expected to grow by more than 15 percent during the first half of 2012.
“We are clearly pleased with the substantial services growth rate,” Computacenter said.
“However, it has become apparent to the board that the significant amount of new business growth requires material investment through our P&L (profit and loss) to deliver successful take-on of the new business.”
Computacenter said that the additional investment costs includes sales commissiones, which are mainly paid up-front, the recruitment and training of more than 700 new staff for the services division and the transfer of staff from customers and their former suppliers.
“Our investment in systems, both back office and customer facing, has also been substantial. Understandably, we are seeing these capital investments increase our depreciation costs,” it added.
Phil Codling, analyst at TechMarketView, said that the fact that Computacenter’s profit for 2011 was £72 million makes the £10 million reduction in profit “a big deal”.
“We already knew that the service wins would provide a welcome boost to Computacenter’s revenues in 2012, following a disappointing 2011, especially in the UK, while also incurring substantial start-up costs.
“However, today’s announcement suggests that during the flurry of wins that came in during Q4 of 2011, Computacenter was wide off the mark with some of its contract cost projects and, presumably, some of its pricing to clients,” said Codling.
He added: “[Today’s announcement] underlines the reality that even in a market that is moving towards more manageable, less asset-heavy infrastructure deals, the potential for getting your sums badly wrong hasn’t gone away. Indeed, as deals get shorter and competition for infrastructure services growth continues to intensify, the risks are arguably increasing.”