Report Example: Computacenter Plc Analysis

2021-07-28 15:03:06
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Report
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Computacenter Plc is a leading provider of computing services in Europe since its formation by the British entrepreneurs, Philip Hulme and Peter Ogden in 1981. Nine years later, the Computacenter opened the largest PC outlet in Europe (Computacenter, 2017, p. 24). Year on year growth made the company the largest privately-owned information technology in the United Kingdom. The replication of this growth beyond its Hatfield headquarters translated to the successful 1998 listing of its shares on the London Stock Exchange (Hoover's Incorporated, 2005, p. 382). The company portfolio of services includes supply, implementation and supporting information technology systems. The company addresses specific segments through subsidiaries and brands fully integrated into its mainstream business. Digica, a fully owned subsidiary, offers outsourcing and management of information technology services targeting mid-market. Besides, Allnet offers specialized network integration services alongside the structured cabling services ( Mergent, 2009, p. 8427). The Mike Norris-led management has overseen the expansion of the companys corporate and government clients beyond the UK into Germany, France, Spain, and South Africa alongside Benelux countries. The increased geographical expansion translates to increased productivity reflected in 3.245 billion revenue and 87.5 million operating income in 2016 (Computacenter, 2016, p. 3). This paper features the analysis of Computacenter financial performance, non-financial trends, corporate governance and financial strategies.

Computacenter Performance Analysis

Profitability

Computacenter aggression in the digitization witnessed in the information technology sector manifests itself in the sustained growth in its revenue. Profitability arises from the linear position of profitability where earnings surpass the expense (Malchin, et al., 2016, p. 451). As such, Computacenter has sustained its success attained in the previous decade to report increasing revenue. In particular, Computacenter has experienced 11.35% growth in its revenue from 2,914 million in 2012 to report 3,245 million in 2016. Profitability in service-oriented companies arises from the continued investment that reinforces the digitalization package required by its target audience (Westerman, et al., 2014, p. 48). A similar pattern emerges in its gross profit that has grown by 14.43% from 374 million earned in 2012 to 428 million in 2016. Although the revenue slipped in 2015, the company recovered timely from the sectorial downturn to report 6% growth in revenue and gross profit as illustrated in Figure 1 below.

Figure 1 showing five-year growth in Revenue, cost of sales and gross profit between 2012 and 2016

2012 2013 2014 2015 2016

Revenue 2,914 3,072 3,108 3,058 3,245

% growth in Revenue 5% 1% -2% 6%

Cost of Revenue 2,540 2,669 2,698 2,654 2,817

% change in Cost of Revenue 5% 1% -2% 6%

Gross Profit 374 403 410 403 428

% Change in Gross Profit 8% 2% -2% 6%

Figure 1 above shows matched growth from 2012 to 2014 before slipping as demand for computing services declined. The company recovers quickly from the 2015 slump to report 6% growth in its revenue, gross margin and cost of revenue. It is clear that the company operations are exposed to tight cost contexts reflected by a matched growth pattern of 11% in its revenue and cost of sales from 2012 to 2016. The exposure to industry pressure leaves organization dealing with thin margins, hence eroding profitability (Bainbridge, 2012, p. 266). However, tight control measures deployed by the company see it get 14.4% in gross profit growth from 2012 374 million to 428 million in 2016.

The exposure to increasing cost of operations matches Computacenter revenue growth owing to the stringent contractual terms that define the industry context. The requirement to adjust cost and revenues to the current scenario leaves the firm with nearly stagnant gross margin (Moran & Kral, 2013, p. 77). One would note that years 2012 and 2013, the company gross margin stagnated at 13.1% as shown in Figure 2 below. Although slight increment was noted of 0.1% in 2015, its gross margin stagnates for three years following to 2016 at 13.2%. From Figure 2 below, the company retains steady growth in its operating income growing at 35.38% from 65 million in 2012 to 88 million in 2016. Nevertheless, exposure to increasing general and administration expenses erodes the gains made (Foster, 2014, p. 87). This reflects in Computacenter case to yield a five-year average of 2.38% operating margin. The cyclic cycles in the product demand translate to wobbles in its net income where 32.65% decline in 2013 is recovered timely with a 66.67% rise from 33 million in 2013 to 55 million in 2014. The company experienced 87.27% growth in 2015 to report 103 million before a 37.86% decline to 64 million in 2016.

Figure 2 outlining gross, net income and related margin alongside the payout and book value per share

2012 2013 2014 2015 2016

Revenue GBP million 2,914 3,072 3,108 3,058 3,245

Gross Margin % 13.1 13.1 13.2 13.2 13.2

Operating Income GBP million 65 51 77 85 88

Operating Margin % 2.2 1.7 2.5 2.8 2.7

Net Income GBP Million 49 33 55 103 64

Earnings Per Share GBP 0.37 0.26 0.45 0.82 0.52

Dividends GBP million 0.2 0.19 0.21 0.2 0.22

Payout Ratio % 47.8 84.8 48.5 22.8 46

Book Value Per Share GBP million 3.46 2.72 2.89 2.6 3.08

Figure 2 above shows book value per share wobbles proportionally with dividends remitted to shareholders. A decline in the dividends per unit translates to decline in per share as seen in the year 2013 and 2015, with gains attained in 2012, 2014 and 2016. It reflects the cyclic renewals and expiry of key contracts responsible for contributing wobbles in the performance of service providers in the information technology (Dodgson, et al., 2013, p. 661).

Liquidity

Liquidity involves the ability of an entity to pay off its short-term liabilities as they become due. Its determination involves an examination of the current assets against short-term liabilities. The annual increment in revenue reduces dependence on borrowed funds to finance working capital requirements (Simson, 2010, p. 125; Nolte, Salmon, & Adcock, 2016, p. 47). From Figure 3 below, Computacenter realizes improving current ratio upon its recovery from the 2013 slump to maintain a steady increase. The current ratio improves from 1.246 in 2013 to 1.343 in 2016 indicating reinforced capability to settle its short-term liabilities in totality. It is evident that the current assets grew by 20.72% from 2012 894 million to 1.081 billion in 2016. This surpasses the 19.43% growth noted in its short-term obligations from 674 million in 2012 to 805 million in 2016. The reduction of current liabilities as assets increase translates to increased liquidity (Danielsson & Payne, 2012, p. 809; Parmenter, 2010, p.55).It reflects implementation of a liquid business approach in its working capital made the inventory reduce by 35% from 68 million in 2012 to 44 million in 2016.

Figure 3 showing Computacenter five-year current ratio and quick ratio from 2012 to 2016

Figures in GBP Million 2012 2013 2014 2015 2016

Total current assets 894 932 982 903 1081

Total current liabilities 674 748 769 696 805

Current Ratio 1.326 1.246 1.277 1.297 1.343

Inventory 68 59 50 46 44

Current Assets Less Inventories 826 873 932 857 1037

Quick Ratio 1.226 1.167 1.212 1.231 1.288

An evaluation of the company to meet its current liabilities from its most liquid assets in figure 3 above shows increasing quick ratio shows steady improvement from 1.167 in 2013 to 1.288 in 2016 as shown above.

One would note the decline in current and quick ratios between 2012 and 2013 emerges of the increased debt reliance to fund its short-term working capital requirements. Debt reliance increases short-term obligations (Alice, John, & Lee, 2009, p. 32; Xingyun, 2015, p. 392). Although the company experienced the decline of 13.77% in its cash and cash equivalent from 138 million in 2012 to 119 million in 2016, its 280% of its short-term investment from 10 million in 2012 to 38 million in 2016 restored steady liquidity increase. The liquidity emerges of the expansionary policy in current assets (Duttweiler, 2013, p. 65; Banks, 2014, p. 276). Computacenter expanded its prepaid expenses leading to a 34.62% from 104 million in 2012 to 140 million in 2016. The growth in its revenue reflects in the 27.07% increase in its receivables from 569 million to 723 million within the same period.

Investment Return

Shareholders target wealth maximization in their investment attainable through sustained profitability and efficiency in the use of resources. The examination of investment return enables one determine the ability of the entity to utilize its assets to generate sales and cash (Lhabitant & Gregoriou, 2008, p. 384; Parmenter, 2011, p. 166). The calculation of investment returns targets the ascertainment of the activity levels and efficiency of running its operations (Wel, et al., 2013, p. 275; Marr, 2012, p.68).

Computacenter operations involve less dependency on inventory back up given the dominance of services package in its offering. As such, the 35.29% decline in the inventory matches the increased digitization trend amongst the corporate and government agencies. Dealing with bulk clientele derived from a single sector exposes the entity to cyclic downturn and booms that affect them (Parmenter, 2012, p. 79). This translated to decline need for inventory since Computacenter offering varies with the clients requirement. The adoption of development and delivery on demand manifests itself in the steady growth in inventory turnover from 37.35 times in 2012 to 64.02 times in 2016 as outlined in Figure 4. It indicates the superior capability of the company to sell out its inventory. This represents above industry average given its thinly stocked approach (Burton, 2014, p. 495). Additionally, Figure 4 indicates efficiently run operations in the company ever-increasing fixed assets turnover.

Figure 4 showing activity turnover in a five-year cycle from 2012 to 2016.

Figures in GBP Million 2012 2013 2014 2015 2016

Revenue 2,914 3,072 3,108 3,058 3,245

% growth in Revenue 5% 1% -2% 6%

Cost of Revenue 2,540 2,669 2,698 2,654 2,817

Inventory 68 59 50 46 44

Inventory Turnover 37.3529 45.2373 53.96 57.6957 64.0227

Fixed Assets 220 203 185 162 160

Fixed Assets Turnover 13.25 15.13 16.80 18.88 20.28

Total Assets 1,114 1,135 1,167 1,065 1,241

% Growth in total Assets 1.89% 2.82% -8.74% 16.53%

Total Assets Turnover 2.62 2.71 2.66 2.87 2.61

Figure 4 above shows the fixed assets turnover improves from 13.25 in 2012 to 20.28 times in 2016. This emerges of the highly-liquid nature of the computing service providers (Moir, 2014, p. 26). It revealed the decline in the fixed assets by 27.27% from 220 million in 2012 to 160 million in 2016. The wobble witnessed in total assets turnover emerges of improved abilities to generate revenue amidst cyclic demand (Dufrenot, et al., 2014, p. 96). This allowed improvement in 2015 following 8.74% reduction of total assets before declining to 2.61 as the total assets growth reached 16.53%.

Solvency

The capability to pay off one's obligations shields the company from a plunge into bankruptcy risks. The ascertainment of solvency involves proof of sufficiency in the entitys cash flow to cover its obligations (Johnson, 2010, p. 776). Figure 5 below shows Computacenters ability to sufficiency cover its i...

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