Services nearly half of Computacenter’s gross profit

(By Anthony Miller – Tuesday, 10th March 2009 8:30am). And we’re talking about a business with just over £2.5bn in sales (see here) of which services now comprise 27%. Computacenter’s services revenues increased in each of its major geographies: UK + 4%; Germany likewise; France +12%; and Benelux +17%; all constant currency (ccy). Only the UK showed any growth in product revenues (+5%). Net net, group revenues grew under 1% ccy, with gross margins up 20 bps to 13.9% but operating margins light 10 bps to 1.7%.

The key services number that management highlights is the contract base, which broadly represents the recurring services revenue stream. This is now just under £500m, up 10% yoy. Some recent major UK wins at Nationwide and Hays will boost this further. I’m sure part of this UK services success comes from the full integration of Digica, which recently got ‘de-branded’ (see Farewell to Digica). On the product side, it was interesting to note that UK sales were driven by storage, virtualisation and A/V technology. The first two go somewhat hand-in-hand but I wonder if the A/V boost means companies are substituting travel with web-based videoconferencing? I’ll check this out. In any event, the extra load this will put on company networks should be good news for network product and services vendors.

Meanwhile, work on the 3-year £25m ERP upgrade continues, with £8m already spent (see Computacenter shows faith in ERP). As I said at the time, this is a huge commitment to make at any time, let alone in a recession, so management must really believe that the ROI is going to be worth the wait.

But let’s be under no misunderstanding here. Computacenter is a product reseller first and foremost and is not in some sort of ‘transition’ to become a fully-fledged services player. The services come on the back of the product business (and may sometimes lead it too) and it is absolutely right that management drives this side of the business as fast and as far as possible consistent with the product resale mission, rather than fall into the trap of some other resellers (who shall remain Morse) who previously bought into other totally unrelated service lines because it sounded like a good idea at the time. Computacenter has never done this and long may it stick to its knitting!