Computacenter shares are down 14% this morning, following a profits warning. The company’s run of services contract wins in late 2011 had a sting in the tail - higher than expected set-up costs.
Computacenter is saying that the burden of on-boarding its newly-bagged infrastructure services contracts (see Computacenter: benefitting from infrastructure service fragmentation) will add an additional £7m to its costs for 2012, compared to previous expectations. It’s also flagging up a £3m dent in current year profits due to the depreciation of the euro. Bear in mind that Computacenter’s EBIT profit for full-year 2011 was £72m, and you can see why the removal of £10m of profit is a big deal.
We already knew that the services 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 (see Computacenter: the cost of services growth). However, today’s announcement suggests that during the flurry of wins that came in during Q4 of 2011, Computacenter was wide of the mark with some of its contract cost projections and, presumably, some of its pricing to clients.
Today’s announcement undoubtedly takes the shine off what is an improving picture on growth for Computacenter UK in 2012. But it also 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.