Computacenter's UK sales fell more than five per cent annually in the first half of the year thanks to a slump in services revenue, which one analyst claims will "set nerves jangling" at the company.
For the six months to 30 June, adjusted revenue at the Computacenter group rose 2.8 per cent to £1.48bn, while adjusted profit before tax fell 13.2 per cent over the same period to £25.3m.
In the UK, adjusted operating profit slumped 38.9 per cent annually to £14m, with adjusted revenue decreasing 5.2 per cent over the same period to £652.7m. The sales slump was partly driven by a 7.3 per cent decrease in UK services revenue, according to its UK managing director Kevin James.
"The majority of this decline relates to two issues," he said. "The first half of 2015 provides a tough comparison due to the exceptional volume of professional services work in 2015, which has not been repeated. Additionally, and as we have previously explained, a significant managed services contract finished at the end of Q1 2015.
"There is likely to be an increase in the level of professional services volumes seen in the second half of the year due to the start-up of some large deployments. There has been a significant volume of renewal activity in managed services during the year, and the business has been successful in each of its managed services renewal bids which have been awarded during the period, although there has been a net reduction in the overall contract base. The pipeline for new contracts is somewhat stronger than 12 months ago, but has not yet recovered to a position where we feel fully comfortable."
The services slide is significant, according to TechMarketView principal analyst Martin Courtney.
"What will really set nerves jangling at the company is a 7.3 per cent decline in UK services revenue (£244m) which was previously a pillar of growth. A 10 per cent fall in professional services revenue in H116 and a net shrinkage in the contract base is a concern, though Computacenter says the pipeline for 2016/17 looks strong after significant renewal activity," he said.
Elsewhere at Computacenter, its German business saw sales in actual currency rise 13.5 per cent annually to €779.8m (£667m), while on the same basis, revenue in the French and Belgian arms grew 1.8 per cent and 1.7 per cent respectively to €247.8m and €31.5m.
Overall, Computacenter's chief executive Mike Norris (pictured) said the group performed marginally ahead of expectations.
"The first half of 2016 finished slightly better than we had anticipated at the time of our Q1 trading update in April 2016, mainly due to the better performance of Computacenter in France," he said.
"The pipeline of managed services growth in the group as a whole is encouraging and should deliver growth in 2017. Even more noticeable is the growing pipeline for digital workplace projects which we are looking to close in the second half of 2016, as customers look to take advantage of new operating systems. Particularly pleasing is the likely growth in major customers, one of our strategic key performance indicators."
Brexit blues or Brexit bliss?
During the H1 period, the UK voted to leave the EU. In Computacenter's trading update, it dedicated a section to analysing Brexit's impact.
"Outside two principal areas where Brexit could affect the group, including weakness within the UK economy driving down short-term demand for the group's products and services, the potential impact is too early to foresee at this stage," said the firm's group financial director Tony Conophy.
"[Regarding] the impact of the change in foreign currency exchange rates, which has been modelled on the 2015 results and disclosed above, the group does not see any major impact on its day-to-day business activities. Clearly, we cannot comment on the likely impact when the UK leaves the EU, as the terms and conditions have not yet been negotiated.
"In short, we believe the group is well positioned, through its geographic spread, balance sheet strength, and diversity of offering, to meet the foreseeable challenges that Brexit may present. With change usually comes opportunity for Computacenter and we remain positively focused on the interesting times ahead."
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