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UPDATE 1-Computacenter sees higher costs, weak euro to hurt
June 14, 2012 / 9:30 AM / 5 years ago

UPDATE 1-Computacenter sees higher costs, weak euro to hurt

* Expects cost to service new contracts to be 7 mln stg more

* Sees 3 mln stg impact to profit from euro weakness

* Shares fall as much as 20 pct

June 14 (Reuters) - Computacenter Plc is expected to take a hit on its bottomline as the IT company anticipates investment to service new contracts will now cost more than estimated.

In April, the company, which provides IT infrastructure services and also advises customers on IT strategy, had alluded to the costs saying that given the size and number of large contracts won, it would incur margin-squeezing costs to bring the business on board.

Computacenter had expected these costs to continue to squeeze margins in the short term.

However, the company now expects these costs to amount to an additional 7 million pounds this year, or about 10 percent of the adjusted pretax profit the company posted last year.

Computacenter said the additional costs include hiring over 700 new services personnel as well as costs related to sales commissions.

The company also expressed concerns about a weaker euro, saying its bottomline could be hurt more by an additional 3 million pounds if the European currency stayed at the current level against the sterling.

Computacenter’s worries about the weakness of the euro come just days after shares of plastic packaging maker RPC Group Plc fell on concerns about a weak euro hurting its profit.

The announcement sent shares in Computacenter down as much as 20 percent. They were trading down 16 percent at 300 pence at 0918 GMT on Thursday on the London Stock Exchange.

“This looks like the price of success, but we are concerned that Computacenter seems to have underestimated the cost impact,” Panmure Gordon analyst George O‘Connor said in a note.

“This smashes profitability and there is no quid pro quo at this juncture, bar saying that managed services revenue is growing at a clip faster than expected,” O‘Connor said.

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