Computacenter plc (LON:CCC), a leading independent technology and services provider, has announced audited results for the year ended 31 December 2023.
| Financial highlights | 2023 | 2022 | Change | Change in constant currency1 |
| Technology Sourcing gross invoiced income (£m) | 8,444.9 | 7,481.6 | 12.9% | 13.1% |
| Services revenue (£m) | 1,636.5 | 1,570.6 | 4.2% | 3.1% |
| Gross invoiced income1 (£m) | 10,081.4 | 9,052.2 | 11.4% | 11.3% |
| Technology Sourcing revenue (£m) | 5,286.3 | 4,899.9 | 7.9% | 8.1% |
| Services revenue (£m) | 1,636.5 | 1,570.6 | 4.2% | 3.1% |
| Revenue (£m) | 6,922.8 | 6,470.5 | 7.0% | 6.9% |
| Gross profit (£m) | 1,044.0 | 947.1 | 10.2% | 9.8% |
| Gross margin (%) | 15.1% | 14.6% | +44bps | |
| Adjusted1 operating profit (£m) | 271.5 | 269.1 | 0.9% | 0.6% |
| Adjusted1 profit before tax (£m) | 278.0 | 263.7 | 5.4% | 5.1% |
| Adjusted1 diluted earnings per share (p) | 174.8 | 169.7 | 3.0% | |
| Dividend per share (p) | 70.0 | 67.9 | 3.1% | |
| Net cash inflow from operating activities (£m) | 410.6 | 242.1 | 69.6% | |
| Adjusted1 net funds (£m) | 459.0 | 244.3 | 87.9% | |
| Statutory measures | 2023 | 2022 | Change | |
| Operating profit (£m) | 268.8 | 256.4 | 4.8% | |
| Profit before tax (£m) | 272.1 | 249.0 | 9.3% | |
| Diluted EPS (p) | 173.2 | 159.1 | 8.9% | |
| Net funds (£m) | 343.6 | 117.2 | 193.2% |
1Alternative performance measures (APMs) and other terms are used throughout this announcement. These are defined in full in the appendix to this announcement.
Financial highlights – 19th consecutive year of adjusted EPS growth
· Another record year of revenue, gross profit and adjusted EPS while continuing to invest for future growth
· Gross invoiced income of over £10bn, up 11.4%, driven by strong growth in Technology Sourcing and solid growth in Services, with gross profit up 10.2%
· Adjusted PBT up 5.4% reflecting higher levels of strategic investment; adjusted diluted EPS up 3.0%
· Excellent cash generation driven by effective inventory management with adjusted net funds increasing by £214.7m to £459.0m
Operational and strategic highlights
· Strong Group performance reflects the benefits of our integrated Technology Sourcing and Services model as well as our broad geographic diversity
· Technology Sourcing gross invoiced income growth of 13.1% in constant currency, driven by resilient large enterprise spend and further market share gains
· Services revenue growth of 3.1% in constant currency, with gross margin performance improving across the year
· Continued momentum in Germany with adjusted operating profit increase of 13.8% in constant currency, reinforcing our leading market position
· Strong growth in North America with adjusted operating profit increase of 24.0% in constant currency, demonstrating the scale of the long-term growth opportunity
· £28.1m of investment in strategic initiatives (2022: £14.8m) to improve our capabilities, enhance productivity and secure future growth
· 2032 mid-term and 2040 Net Zero targets approved by SBTi as part of our Sustainability roadmap
Shareholder returns
· Proposed final dividend of 47.4p, increasing the full year dividend by 3.1% to 70.0p
· Given the strength of our balance sheet we continue to evaluate a number of capital allocation options
Outlook
· Expect to make further progress in 2024 with growth weighted to the second half of the year, reflecting a significantly more challenging comparison in the first half of the year than in the second half
Mike Norris, Chief Executive Officer of Computacenter plc, commented:
“We delivered our nineteenth consecutive year of growth in adjusted earnings per share, outperforming our markets in 2023, as our large customers continued to invest heavily in new technology. We managed an uncertain macroeconomic backdrop and inflationary pressures effectively, reduced our inventory significantly, resulting in a record net cash position. As planned, we stepped up our investment in strategic initiatives to underpin our competitiveness and future growth.
“Overall we expect 2024 to be another year of progress with growth weighted to the second half, while continuing to invest for future growth. Looking further ahead, the combination of the strength of our integrated Technology Sourcing and Services model and our geographic diversity, gives us continued confidence in our long-term growth prospects.”
Chief Executive Officer’s review
2023 was another record year for Computacenter, with further growth in gross profit, adjusted profit before tax and adjusted earnings per share. This reflects the strength and benefits of our integrated Technology Sourcing and Services model, as well as our geographic diversity. We achieved this result despite the uncertain macroeconomic backdrop and elevated inflation, while increasing our investment in strategic initiatives to secure future growth.
By staying faithful to our strategy and focusing on customer needs, over the last five years we have grown organically and also significantly expanded our geographic footprint through targeted acquisitions in North America. This enlarged platform has delivered a step change in profits, with adjusted profit before tax and adjusted earnings per share more than doubling over the same period.
We now have more than 20,000 colleagues worldwide and their commitment to our customers drives our success. We believe in empowering our people and helping them to make good business decisions. With an average service length of over nine years, many have devoted significant parts of their careers to Computacenter and I thank them all for their contribution and agility, especially in navigating the various significant unexpected events of recent years.
Outperforming our markets
In 2023 we grew faster than both the market and our major competitors and have gained further market share as a result. We benefited from our target market, the largest organisations, proving the most resilient and continuing to invest in technology, combined with the breadth of our capability across Technology Sourcing and Services. Notable features of 2023 have been the ongoing growth of our share with some existing large customers, in addition to acquiring some strategically significant new customers, with whom we expect to grow in the coming years. We are grateful for their faith in us and look forward to supporting their ambitions.
Technology Sourcing
Technology Sourcing grew by 12.9% on a gross invoiced income basis and by 13.1% in constant currency, fuelled by strong growth in networking and data center. Workplace-related activity remained subdued following the significant spend during the pandemic but will naturally recover as customers refresh the workplace environment and implement new technologies, including AI. During the year, and notably in the first half of 2023 we benefited from exceptional demand from certain customers, which we expect to normalise in 2024. Gross margin performance was robust, reflecting our scale benefits and changes in product mix.
Industry supply chains and customer ordering behaviours have returned to pre-Covid normalised levels, with customers no longer placing long lead-time orders due to the improved availability of product. Backlogs for most of our geographies have therefore decreased and as a consequence we responded by managing down our inventory position very effectively, which has helped drive very strong cash generation.
We continue to invest in and develop our value-added services to ensure our customers have consistently great experiences. Our Integration Centers are benefiting from investment in greater automation to improve efficiency and agility. Our international reach, which matches the footprint of many of our large multi-national customers, is helping us to win new business and is an ongoing source of differentiation. Our Circular Services capability is also helping customers deliver on their sustainability agendas.
Services
Services, which encompasses Professional and Managed Services, is critical to our business model. In 2023 Services revenue increased by 4.2% and by 3.1% in constant currency. Our Services gross margin was impacted by inflation during the year. However it remains healthy versus historical levels and improved as the year progressed, as we made efficiencies and took advantage of contractual opportunities to recover cost increases.
Customers value our highly skilled consultants, engineers and programme managers across our Professional Services business, using them to deploy new digital technology, from complex network and data center integrations to workplace rollouts. Professional Services has been a strong driver of growth for Services over the last five years, and we see it as an important future revenue and profit-growth driver for the Group.
In 2023, we grew Professional Services revenue by 6.6% and by 5.7% in constant currency, fuelled by another strong performance in Germany, which reflects the strength and breadth of our capability and depth of relationships with large corporate and public sector customers. We are committed to growing and enhancing Professional Services by having a broader and scalable portfolio across all countries, based on a common operating framework and a strong sales approach.
Managed Services generates visible long-term contract revenue, as we maintain, support and manage our customers’ IT infrastructure and operations, to improve quality and flexibility while reducing costs. These services are important to the longevity of our customer relationships, with more than three-quarters of our major European headquartered customers contracting with us, supported by our Service Centers globally.
In 2023, we grew Managed Services revenue by 2.5% and by 1.3% in constant currency. Managed Services contracts generally have specific cost of living adjustment clauses within them that enable us to increase our rate card prices and recover increases in our costs at a later date which helped our margin performance as the year progressed. Towards the end of the year, we won some significant new contracts which will contribute from 2024 onwards.
To offer increased value to our customers we continue to invest in new and improved systems, greater automation and offshoring. We now have nearly 1,400 colleagues in India versus 1,100 at the end of 2022, serving our customers. The market opportunity for Managed Services is substantial in our core areas of workplace, networking, infrastructure and cloud.
Diversified across markets
Germany had an excellent year, continuing its strong growth trajectory in 2023 as it consolidated its market-leading position for large corporate and public sector customers. Germany’s performance reflects our deep capabilities in technology areas such as networking and cyber and our ability to support customers at every stage of the IT lifecycle.
In North America, the largest market globally, we have a clear long-term growth opportunity as we continue to leverage Computacenter’s broader capability and resources. In 2023, we further integrated the businesses we have acquired and at the same time delivered a strong financial performance.
We are also pleased to see positive momentum in France, where our enlarged business is starting to deliver on its potential, as well as strong performances in Belgium and the Netherlands. Our UK performance was disappointing, reflecting in part higher exposure to subdued workplace demand. We responded by making changes to our UK leadership team and our sales approach and saw the benefits start to come through at the end of last year.
Investing to secure future growth
2023 has been a year of significant additional investment in critical strategic initiatives, which will improve our capabilities and productivity, enable us to further leverage AI solutions, and underpin our systems for the future. This investment increased by £13m to £28m and we expect to maintain our spending at this level in 2024.
Most of the investment is focused on our systems. We are not just upgrading but also moving to new systems to obtain the security and support we need and to develop competitive advantage through new toolsets and processes, all of which will help secure future growth.
Cyber security remains one of the greatest risks to our business. It also presents one of the greatest opportunities to differentiate ourselves from our competitors, both through our own resilience and by helping our customers to overcome the same challenges. We will continue to invest significantly to mitigate cyber risks.
Strong inventory management driving excellent cash generation and balance sheet strength
As noted above, the easing of supply chain challenges and better availability of product in 2023 meant customers reverted to more normal ordering patterns and we reduced our inventory significantly as a result. Consequently we generated excellent levels of cash that exceeded our expectations.
The Group had £216.0m of inventory as at 31 December 2023, a decrease of 48.3% since 31 December 2022 (£417.7m). Adjusted net funds increased by £214.7m to £459.0m at the year end.
The strength of our balance sheet provides us with significant optionality, and we continue to evaluate a number of capital allocation options, including potential inorganic growth and the return of surplus capital to shareholders.
Outlook
Looking ahead to 2024, in the context of a continuing uncertain macroeconomic backdrop, the Group is well positioned to continue to compete and gain further market share.
As anticipated, we expect to see Technology Sourcing volumes normalise in 2024 as some of the high-volume, lower-margin projects we delivered, especially in the first half of 2023, were completed. In Services we expect continued growth while inflationary pressures are expected to moderate further.
We will continue to invest in strategic initiatives to enhance our systems and improve our competitive position to sustain our long-term performance. At the same time, we are increasingly focused on delivering productivity benefits across the Group.
Overall we expect to make further progress in 2024 with growth weighted to the second half of the year, reflecting a significantly more challenging comparison in the first half of the year than in the second half.
Looking further ahead, we are excited by the pace of innovation and growth in demand for technology. With our strength in Technology Sourcing, Professional Services and Managed Services, and focus on retaining and maximising customer relationships over the long term, we believe that we are well placed to deliver profitable growth and sustained cash generation.
Technical guidance for 2024:
· Strategic initiatives spend expected to be £28-30m
· Adjusted effective tax rate expected to be 28.5%-30.5%
· Capex expected to be £35-40m
· Dividend cover of 2-2.5x adjusted diluted EPS
Our strategic focus
Focus on Target Market Customers: We focus only on a target market of the largest corporate and public sector organisations in each of our Sales countries. These target market customers require us to offer significant flexibility to meet their specific needs while also being competitive in each part of our portfolio. We invest in sales and customer engagement teams to build long-term relationships which earn customer loyalty. We work hard to get to know our customers, understand their needs and put them at the heart of everything we do.
Build Service Line scale and competitive advantage: We want to be the logical choice for our target market customers in the activities in which we focus. Our Service Lines of Technology Sourcing, Professional Services and Managed Services are focused on building and leveraging capabilities to meet customer needs efficiently and consistently and to build economic advantage.
Empower our People: We work hard to understand the needs of our customers and allow our customer-facing people to make responsible decisions that help us meet the needs of our customers faster. It is an essential part of our culture and helps us to differentiate from our competition, ensuring that we are focused on the needs of our target market customers and that our investments deliver an effective return. We empower our customer-facing people, while ensuring that all decisions are taken within a clear governance framework, supported by strong customer profitability reporting and clear remuneration plans.
We measure our strategic progress as follows:
Customer relationships: retain and maximise the relationships with our large corporate and public sector customers over the long term
In 2023, we finished with 183 customers generating over £1m of gross profit, a decline of five from the previous year. This decline is unusual in a year in which we have maintained positive performance momentum. It is due to a diversity of performance from our customer base – a small number of customers have contributed significantly to our overall gross profit through significant investment programmes, while others have temporarily fallen below the £1m threshold, although they have continued to spend with us. While the decline is due to customer spending patterns, we are not complacent about this measure and have placed renewed focus on improvement in this KPI in the years ahead, through both growth in spend with existing customers as well as new customer acquisition. At the same time, we are pleased that the diversity and breadth of our customer base has delivered resilience in our performance.
Services growth: lead with and grow Services
In 2023, we grew Services revenue by 3.1% in constant currency in the context of a market where some services competitors have been showing revenue decline. Group Professional Services revenue grew by 5.7% in constant currency, despite a decline in the UK. Our Germany business, where we have built greater scale and competitive advantage, continues to set a benchmark for the levels of Professional Services growth achievable, with an increase of 13.5% in constant currency. We believe that we can grow Professional Services across the Group significantly. We have organised our previously disparate Professional Services resources into a single Group Service Line to provide the necessary focus and to leverage our success in Germany across the Group.
Group Managed Services revenue grew by 1.3% in constant currency. Our Managed Services business has continued to make reasonable progress in challenging market conditions. Despite the impact of inflation and resulting upward pressure on our cost base, customers continue to expect productivity gains through systems and automation, the development of which requires sustained and consistent investment. We are particularly pleased with some new Managed Services contract wins towards the end of 2023, which will support our continued growth in the years ahead.
Productivity: increase the adjusted operating profit we retain as a proportion of our gross profit
Productivity is an important driver of value for the Group and we have broadened the way we measure this KPI. We are using gross profit conversion as the best overall productivity measure for our business across all our activities. It measures how much of our gross profit we convert into adjusted operating profit and helps measure how effectively we use our scale to improve operational leverage.
Management has already been incentivised on this KPI internally for some years. Gross profit conversion increased to 30.1% in 2021, as a result of both increased gross profit generation and improved Services productivity as a result of the Covid-19 pandemic. In 2022, Services productivity returned to more normal levels while inflation increased selling, general and administrative costs, resulting in a decline of gross profit conversion to 28.4%.
At the end of 2022 and throughout 2023 we have increased central corporate costs, primarily driven by the increased spend in strategic initiatives, resulting in a reduction in gross profit conversion to 26.0%. We believe this investment is essential to underpin our long-term competitiveness and will continue at an increased level in 2024.
Responsible business
Computacenter continues to make good progress in line with our Sustainability Strategy, maintaining Carbon Neutrality for Scope 1 and 2 emissions for the second year. In 2023, we became one of the first in our industry to have our near-term, long-term and 2040 Net Zero targets approved by SBTi. During the same period, we saw our annual CDP disclosure ranking increase again, this time to A-.
In parallel, we have been creating positive impact for our people, customers and communities as part of our Social Strategy. Within our business, we have increased the percentage of senior roles held by women and the percentage of women across our workforce; we now have 1,400 more women than we did four years ago. This is just one of the areas of progress across our Diversity and Inclusion programmes.
We have also continued in our support of the communities around us, combining fundraising for charities with our own outreach and volunteering initiatives. During 2023, in the UK alone, we reached 21,135 young people through our social outreach programmes delivered by our volunteer network.
Underpinning our responsible business approach is our Sustainable Operations Strategy, which combines the systems and actions we need to ensure our environmental, social and compliance goals are addressed across our business and supply chain.
Summary of 2023 Group performance
In 2023, we continued to see strong demand for Technology Sourcing, with our target market, the largest customers, proving the most resilient and continuing to invest in technology. We grew our share within existing customers and also acquired new customers. Our Services business delivered solid growth during the year, with Professional Services revenue growing faster than Managed Services.
Total gross invoiced income increased by 11.4% and by 11.3% in constant currency and total revenue increased by 7.0% and by 6.9% in constant currency. Gross profit increased by 10.2% on a reported basis and by 9.8% in constant currency, driven by the strength of Technology Sourcing. Group gross margin increased by 44 basis points to 15.1%, reflecting a 74 basis points increase in Technology Sourcing and a 32 basis points decline in Services.
Adjusted operating profit increased by 0.9% on a reported basis and by 0.6% in constant currency, largely reflecting the impact of inflation and incremental investment in strategic initiatives. By geography, Germany and North America delivered strong growth in adjusted operating profit, more than offsetting a weaker performance in the UK.
Adjusted profit before tax increased by 5.4% on a reported basis and by 5.1% in constant currency, benefiting from higher net finance income. Adjusted diluted EPS increased by 3.0%, reflecting an increase in the effective tax rate to 27.6% (2022: 25.5%). Profit before tax increased by 9.3%. The difference between profit before tax and adjusted profit before tax relates to the Group’s net costs of £5.9m from exceptional and other adjusting items, related to exceptional and other adjusting items associated with the acquisitions of Pivot and BITS. Diluted EPS increased by 8.9%.
Our cash performance was excellent as we reduced inventory, resulting in an increase of adjusted net funds of £214.7m to £459.0m.
Group performance
| Results | 2023£m | 2022£m | Change | Change in constant currency |
| Technology Sourcing gross invoiced income | 8,444.9 | 7,481.6 | 12.9% | 13.1% |
| Services revenue | 1,636.5 | 1,570.6 | 4.2% | 3.1% |
| Professional Services revenue | 678.8 | 636.6 | 6.6% | 5.7% |
| Managed Services revenue | 957.7 | 934.0 | 2.5% | 1.3% |
| Total gross invoiced income | 10,081.4 | 9,052.2 | 11.4% | 11.3% |
| Technology Sourcing revenue | 5,286.3 | 4,899.9 | 7.9% | 8.1% |
| Services revenue | 1,636.5 | 1,570.6 | 4.2% | 3.1% |
| Professional Services revenue | 678.8 | 636.6 | 6.6% | 5.7% |
| Managed Services revenue | 957.7 | 934.0 | 2.5% | 1.3% |
| Total revenue | 6,922.8 | 6,470.5 | 7.0% | 6.9% |
| Gross profit | 1,044.0 | 947.1 | 10.2% | 9.8% |
| Adjusted total administrative expenses | (772.5) | (678.0) | 13.9% | 13.5% |
| Adjusted operating profit | 271.5 | 269.1 | 0.9% | 0.6% |
| Net adjusted finance income / (costs) | 6.5 | (5.4) | ||
| Adjusted profit before tax | 278.0 | 263.7 | 5.4% | 5.1% |
| Adjusted diluted earnings per share (p) | 174.8 | 169.7 | 3.0% | |
| Gross profit | 1,044.0 | 947.1 | 10.2% | |
| Total administrative expenses | (783.3) | (690.7) | 13.4% | |
| Other income related to acquisition of subsidiary | 5.3 | – | ||
| Gain on acquisition of subsidiary | 2.8 | – | ||
| Operating profit | 268.8 | 256.4 | 4.8% | |
| Net finance income / (costs) | 3.3 | (7.4) | ||
| Profit before tax | 272.1 | 249.0 | 9.3% | |
| Diluted EPS (p) | 173.2 | 159.1 | 8.9% |
Technology Sourcing
Technology Sourcing achieved strong growth during the year, driven by the spread of the customer base across multiple market segments, technology lines and geographies, which create durability and sustainability through diversification. After a very strong performance in the first half driven by certain high-volume projects, as expected, the second half saw more normalised activity levels as these were completed.
Group Technology Sourcing gross invoiced income grew by 13.1% in constant currency. Technology Sourcing gross margin increased by 74 basis points, reflecting broad-based improvements largely offsetting the impact of certain projects with lower-margin volumes, and a higher-software mix.
By technology area demand has been strongest in networking and data center. Workplace has been subdued reflecting high levels of investment during the pandemic. Customers continue to re-engineer IT structures and employ digital transformation to cope with the ever-evolving technology landscape and the need to reduce non-IT operating costs. The heightened cyber threat landscape continues to drive demand in this area.
By geography, Germany and North America were the key drivers of growth. North America benefited in particular from certain high-volume, lower-margin projects which are expected to normalise in 2024.
Our product order backlog, which is the total value of committed outstanding purchase orders placed with our technology vendors against non-cancellable sales orders for delivery within 12 months, as at 31 December 2023, is significantly lower than the prior-year equivalent. The reduction largely reflects the completion of certain high-volume projects in North America and the return to usual customer ordering behaviour as industry supply chains returned to normal. The product order backlog at 31 December 2023 was £1,222.3m, on a gross invoiced income basis, a 56.3% decrease since 31 December 2022 (£2,794.6m) in constant currency.
The Technology Sourcing backlog, alongside the Managed Services contract base and the Professional Services forward order book, provide visibility of future revenues in these areas.
Services
Our Services performance for the year was solid. Total Services revenue grew by 3.1% in constant currency. Services gross margin decreased by 32 basis points during the year, mainly reflecting the impact of inflation and some onboarding costs for contracts won in 2022. We managed our margin recovery more effectively across the year, resulting in a better margin performance in the second half.
Professional Services revenue grew by 5.7% in constant currency and accounted for 41% of total Services revenue. Germany, our largest source of Professional Services revenue, grew strongly during the year across all solutions lines. This outweighed the weaker performance in the UK, which reflected the softer environment for workplace.
Managed Services revenue grew by 1.3% in constant currency and accounted for 59% of total Services revenue. Germany, our largest source of Managed Services revenue, grew well during the year reflecting contracts won in 2022. The UK experienced a slight decline in revenue in 2023, although a number of contract wins towards the end of the year are expected to support growth in 2024 and beyond.
Trading reviews by geography
United Kingdom
| Results | 2023£m | 2022£m | Change |
| Technology Sourcing gross invoiced income | 1,938.1 | 1,864.2 | 4.0% |
| Services revenue | 441.9 | 460.3 | (4.0%) |
| Professional Services revenue | 132.2 | 147.5 | (10.4%) |
| Managed Services revenue | 309.7 | 312.8 | (1.0%) |
| Total gross invoiced income | 2,380.0 | 2,324.5 | 2.4% |
| Technology Sourcing revenue | 771.8 | 809.1 | (4.6%) |
| Services revenue | 441.9 | 460.3 | (4.0%) |
| Professional Services revenue | 132.2 | 147.5 | (10.4%) |
| Managed Services revenue | 309.7 | 312.8 | (1.0%) |
| Total revenue | 1,213.7 | 1,269.4 | (4.4%) |
| Gross profit | 250.8 | 259.2 | (3.2%) |
| Adjusted administrative expenses | (192.0) | (178.7) | 7.4% |
| Adjusted operating profit | 58.8 | 80.5 | (27.0%) |
The UK delivered a weaker result in a soft market, especially for workplace activity. Total gross invoiced income increased by 2.4% reflecting growth in Technology Sourcing, partly offset by a 4.0% decline in Services revenue. Total revenue decreased by 4.4% reflecting a higher mix of software. Gross profit decreased by 3.2% with gross margin increasing by 24 basis points. Administrative expenses increased by 7.4% largely reflecting inflation and higher people costs, resulting in adjusted operating profit decreasing by 27.0%.
The UK market softened during the year due to unsettled economic conditions, with businesses and organisations delaying project implementations and investment decisions.
Early in the year, we implemented new leadership followed by significant structural changes, to enhance our focus on our target market of large corporate and public sector organisations and maximise growth. As part of this, we expanded our sales sectors from four to five, allowing us to get closer to our customers, better understand their needs and preferences, and ultimately drive increased sales opportunities. While near-term demand remains uncertain, we are encouraged by some significant Services contract wins towards the end of the year.
Technology Sourcing
Technology Sourcing gross invoiced income increased by 4.0%. Volumes started the year strongly but softened as the year progressed. Gross margin increased by 31 basis points.
Demand for hardware was subdued, particularly in the workplace, although we increased share with our key vendors. This follows customers’ significant investments through the pandemic to support home and hybrid working and the completion of a number of large Windows 10 rollouts. As anticipated, this has led to a lag in customer adoption of Windows 11. Workplace activity is an important driver of utilisation at our Integration Centers, where our costs remain largely fixed. Software demand was stronger in areas such as data center and cloud.
We expect the adoption of Windows 11 to gain momentum during the second half of 2024. This will likely drive increased demand for new hardware, as customers upgrade their systems to align with the new operating system.
The product order backlog at 31 December 2023 was £364.3m. This represents a 10.1% increase since 31 December 2022 (£331.0m).
Services
Services revenue declined by 4.0%, with Managed Services decreasing by 1.0% and Professional Services by 10.4%. Gross margin increased by 11 basis points, reflecting good recovery of cost inflation.
The lower demand in Technology Sourcing has had a ripple effect in Professional Services, which led to lower demand for workplace-related activities. This outweighed the significant growth achieved in supporting customers’ adoption of public cloud and expanding and securing their networks.
In Managed Services, we concluded a large number of contract renewals during the year. Encouragingly, towards the end of the year we secured a large public sector contract as well as a number of smaller corporate contracts, all of which also provide growth opportunities in Technology Sourcing and Professional Services.
Germany
| Results | 2023£m | 2022£m | Change | Change in constant currency |
| Technology Sourcing gross invoiced income | 2,111.5 | 1,704.7 | 23.9% | 21.7% |
| Services revenue | 765.7 | 690.4 | 10.9% | 8.7% |
| Professional Services revenue | 365.4 | 315.7 | 15.7% | 13.5% |
| Managed Services revenue | 400.3 | 374.7 | 6.8% | 4.7% |
| Total gross invoiced income | 2,877.2 | 2,395.1 | 20.1% | 17.9% |
| Technology Sourcing revenue | 1,261.8 | 1,153.1 | 9.4% | 7.5% |
| Services revenue | 765.7 | 690.4 | 10.9% | 8.7% |
| Professional Services revenue | 365.4 | 315.7 | 15.7% | 13.5% |
| Managed Services revenue | 400.3 | 374.7 | 6.8% | 4.7% |
| Total revenue | 2,027.5 | 1,843.5 | 10.0% | 8.0% |
| Gross profit | 374.5 | 325.1 | 15.2% | 13.1% |
| Adjusted administrative expenses | (211.5) | (184.2) | 14.8% | 12.5% |
| Adjusted operating profit | 163.0 | 140.9 | 15.7% | 13.8% |
Germany delivered another strong year of growth, reflecting the depth and breadth of our capabilities and customer relationships. Total gross invoiced income increased by 17.9% in constant currency, driven by very strong growth in Technology Sourcing and strong growth in Services revenue. Gross profit increased by 13.1% in constant currency with gross margin increasing by 84 basis points, largely reflecting the strength of the Technology Sourcing performance. Administrative expenses increased by 12.5% in constant currency reflecting higher commissions and inflation, resulting in adjusted operating profit growth of 13.8% in constant currency.
We are benefiting from our strong focus on public sector and enterprise business. We significantly broadened our portfolio with existing customers and expanded our customer base. Our investments in the salesforce and broadening the technology and skills base are showing clear benefits and creating the basis for further growth.
The breadth of our portfolio is a key driver of our growth. For example, we concluded the largest Cisco Whole Portfolio Agreement contract in Europe, with a major international industrial technology group headquartered in Germany. This contract will run for five years. We will continue to equip, modernise, and operate IT infrastructure in all schools for a large southern German state capital in the coming years. This is an important milestone as we develop our offer to the German education market. In the transport sector, we expanded our scope with the largest German transport company and we will now provide a large part of its personal computer client infrastructure from next year onwards. Towards the end of the year, we won a significant IT infrastructure framework agreement with one of Germany’s largest airports. In chemical and pharmaceuticals, we won Managed Services business with a global producer and will be responsible for the Global Service Desk. In addition, we significantly expanded our app development and cloud management business following investment in developers based in Cluj, Romania, to support our solution designers and project managers in Germany.
Technology Sourcing
Technology Sourcing gross invoiced income increased by 21.7% in constant currency, well ahead of market growth. This was driven by networking and security but data center and workplace also showed good growth. Technology Sourcing gross margin was very strong, increasing by 255 basis points over the period due to strong product mix and increased share of software volumes.
In addition to the increasingly strong software demand, we are seeing greater customer demand to bundle procurements in bigger framework contracts. This particularly applies to the global requirements of large international customers and to the high demand for infrastructure from our major public sector clients at state and federal level.
We also see demand for the combination of innovative and flexible financing solutions with asset management, deployment and maintenance services. The first international implementation of Computacenter’s Device as a Service (DaaS) solution went live for a large German financial institution during the year.
The product order backlog at 31 December 2023 was £234.9m, a 25.6% decrease in constant currency since 31 December 2022 (£315.6m). This decrease largely reflects customer ordering patterns returning to normal.
Services
Services revenue increased by 8.7% in constant currency with 13.5% growth in Professional Services and 4.7% growth in Managed Services. Services gross margin declined by 205 basis points as Managed Services experienced an increase in costs, most of which was inflation-related. In addition, there were one-off costs for onboarding new service contracts won in 2022 and technology refreshes of existing contracts that were up for renewal. Not all of these cost increases could be passed on to customers or offset by cost-reduction measures.
Professional Services saw continuing strong demand from public sector customers for support, engineering and consultancy services. We are excellently positioned here, with a broad base of framework agreements and a very good customer structure, primarily with federal and state authorities and larger local country departments and cities. We expect demand to be robust in the coming years and these areas will remain our focus. We also see a continuing need for project support and skills in our corporate customer segment, especially in networking and security, data center consolidation and cloud management, as well as for expanding modern workplace infrastructures. Our application development business, which we have grown organically, continues to be in high demand with our customers.
In Managed Services we are working hard to mitigate cost inflation by passing on the higher costs to our customers, where contractually appropriate, and by achieving additional savings, for example by using more automation. Our second challenge was to complete the transformational activities and technology refresh at a small number of customers in 2023. We have a very solid pipeline particularly in workplace and networking, where we are very well positioned. An increasing number of our international customers are looking for IT infrastructure service providers with a global capability for these services to improve quality and flexibility while reducing costs.
France
| Results | 2023£m | 2022£m | Change | Change in constant currency |
| Technology Sourcing gross invoiced income | 728.5 | 606.7 | 20.1% | 18.2% |
| Services revenue | 183.6 | 178.1 | 3.1% | 1.0% |
| Professional Services revenue | 50.8 | 41.7 | 21.8% | 19.2% |
| Managed Services revenue | 132.8 | 136.4 | (2.6%) | (4.6%) |
| Total gross invoiced income | 912.1 | 784.8 | 16.2% | 14.3% |
| Technology Sourcing revenue | 479.9 | 435.8 | 10.1% | 8.3% |
| Services revenue | 183.6 | 178.1 | 3.1% | 1.0% |
| Professional Services revenue | 50.8 | 41.7 | 21.8% | 19.2% |
| Managed Services revenue | 132.8 | 136.4 | (2.6%) | (4.6%) |
| Total revenue | 663.5 | 613.9 | 8.1% | 6.2% |
| Gross profit | 87.3 | 76.7 | 13.8% | 12.3% |
| Adjusted administrative expenses | (78.6) | (69.6) | 12.9% | 10.9% |
| Adjusted operating profit | 8.7 | 7.1 | 22.5% | 26.3% |
France continued its momentum into 2023 and delivered further strong growth during the period. Total gross invoiced income increased by 14.3% in constant currency, driven by strong growth in Technology Sourcing and a slight increase in Services revenue. Gross profit rose 12.3% in constant currency with gross margin increasing by 66 basis points, largely due to higher infrastructure and software mix. Administrative expenses increased by 10.9% in constant currency, reflecting targeted investment in sales headcount and inflation, resulting in adjusted operating profit increasing by 26.3% in constant currency to £8.7m.
Demand for Technology Sourcing was stronger than for Managed Services, where decision making was slower. During the year we continued to strengthen our position in networking and data center, aided by the full integration of CCNS, the business we acquired towards the end of 2020.
Technology Sourcing
Technology Sourcing gross invoiced income increased by 18.2% in constant currency, with a strong performance across both our corporate and public sector businesses. Technology Sourcing gross margin increased by 111 basis points, largely reflecting a higher-margin product mix.
The public sector remains the biggest contributor and this is mainly related to growth in multi-year framework agreements. We increased our presence in this area and were successful in winning new software and networking contracts, which we expect to drive growth. We continue to invest in our technical skills and are committed to maintaining the highest levels of accreditations for our priority technology vendors, especially in networking.
The product order backlog at 31 December 2023 was £124.1m representing a 7.9% increase in constant currency since 31 December 2022 (£115.0m).
Services
Services revenue increased by 1.0% in constant currency, with 19.2% growth in Professional Services offset by a 4.6% decline in Managed Services. Services gross margin decreased by 87 basis points, reflecting volume declines in Managed Services and the impact of inflation.
Growth in Professional Services was mainly driven by large workplace and data center projects in the public sector. Our Managed Services contracts are predominantly with corporate customers. We saw a decrease in volume reflecting the lack of significant new contract wins in 2022. It was a good year for contract renewals in 2023 and in many instances, we have been able to expand our scope of work. However, decisions on new contract awards are taking longer, with some larger outcomes now expected in 2024.
North America
| Results | 2023£m | 2022£m | Change | Change in constant currency |
| Technology Sourcing gross invoiced income | 3,454.4 | 3,131.7 | 10.3% | 11.8% |
| Services revenue | 146.1 | 149.4 | (2.2%) | (0.9%) |
| Professional Services revenue | 118.7 | 122.5 | (3.1%) | (1.7%) |
| Managed Services revenue | 27.4 | 26.9 | 1.9% | 2.7% |
| Total gross invoiced income | 3,600.5 | 3,281.1 | 9.7% | 11.2% |
| Technology Sourcing revenue | 2,602.6 | 2,357.9 | 10.4% | 11.8% |
| Services revenue | 146.1 | 149.4 | (2.2%) | (0.9%) |
| Professional Services revenue | 118.7 | 122.5 | (3.1%) | (1.7%) |
| Managed Services revenue | 27.4 | 26.9 | 1.9% | 2.7% |
| Total revenue | 2,748.7 | 2,507.3 | 9.6% | 11.0% |
| Gross profit | 267.5 | 238.3 | 12.3% | 13.7% |
| Adjusted administrative expenses | (202.5) | (185.3) | 9.3% | 10.7% |
| Adjusted operating profit | 65.0 | 53.0 | 22.6% | 24.0% |
North America delivered a strong performance for the year. Gross invoiced income increased by 11.2% in constant currency and by 10.2% on an organic1 basis, driven by excellent growth in Technology Sourcing, with Services slightly down.
Gross profit increased by 13.7% in constant currency with gross margin increasing by 23 basis points, reflecting an underlying improvement across most of the business, offsetting the impact of high-volume lower-margin business. Administrative expenses increased by 10.7% in constant currency driven by higher commissions and wage inflation, resulting in adjusted operating profit increasing by 24.0% in constant currency and by 22.3% on an organic basis.
During the year, we significantly simplified the way that we go to market in North America. We have reduced the number of customer sectors we work in from 13 to seven, to ensure that we are targeting markets with appropriate sizes and that we can support them effectively. We continue to expand the number of salespeople to support our growth.
At the beginning of the year, we identified a number of prospective customers that we consider to be strategic for us in the long term. We received orders from 24 of these organisations during 2023 and we expect them to become significant customers for us in the future. We continue to focus heavily on operational improvements within the North American business and consolidated our CRM system in 2023. Implementing our Group ERP system remains a top priority.
Technology Sourcing
Technology Sourcing gross invoiced income grew by 11.8% in constant currency and by 10.8% on an organic basis, reflecting exceptional growth with a hyperscale customer. Our gross margin in Technology Sourcing increased by 23 basis points, with the underlying margin improvement across most of the business outweighing the impact of the growth in the hyperscale customer noted above, which commands a lower margin.
We continued to see a higher level of ‘drop-ship’ revenue driven by hyperscale customers, where products are delivered directly from the vendor rather than passing through our Integration Centers. Utilisation has however improved across the year and we have a significant pipeline of opportunities to grow Integration Center volumes.
We have continued to increase the number of technology vendors we work with and our US presence is helping to strengthen our relationships and programmes with existing vendor partners globally.
BITS, which we acquired in July 2022, delivered good growth for the year, with a large customer order that was deferred in the first half of the year fulfilled in the second half.
The product order backlog at 31 December 2023 was £487.1m, a 75.8% decrease in constant currency since 31 December 2022 (£2,009.0m). This decrease largely reflects the completion of certain high-volume, lower-margin projects.
In 2024 we expect Technology Sourcing volumes to normalise, following the exceptionally strong growth we achieved with certain high-volume, lower-margin customers in 2023. We believe we are well positioned to manage this over time given the structural improvements we have made and our progress with other large corporate customers.
Services
Services revenue declined by 0.9% in constant currency, reflecting a 1.7% decline in Professional Services and 2.7% growth in Managed Services. Services gross margin increased by 23 basis points. Services revenues are currently small but we are excited by the opportunity to expand and leverage our Group-wide tools and systems, in both Professional and Managed Services.
Professional Services was impacted by unsatisfactory returns from one large customer, which has now been addressed. We continue to focus on efficiency to drive margin improvement.
The Managed Services business continues to execute our slow-and-steady growth plan. We went live with a large new customer in the US and won two new contracts in Canada, including one to provide helpdesk, asset and software license management services to a healthcare customer. We also secured a contract to provide a multi-year storage and backup service for a large government entity, which will allow us to sell to a broad range of public sector and non-profit organisations. Towards the end of the year we won a contract with a global automotive customer which will start in 2024, through successful collaboration with our German business.
International
| Results | 2023£m | 2022£m | Change | Change in constant currency |
| Technology Sourcing gross invoiced income | 212.4 | 174.3 | 21.9% | 19.5% |
| Services revenue | 99.2 | 92.4 | 7.4% | 5.8% |
| Professional Services revenue | 11.7 | 9.2 | 27.2% | 21.9% |
| Managed Services revenue | 87.5 | 83.2 | 5.2% | 3.9% |
| Total gross invoiced income | 311.6 | 266.7 | 16.8% | 14.8% |
| Technology Sourcing revenue | 170.2 | 144.0 | 18.2% | 15.9% |
| Services revenue | 99.2 | 92.4 | 7.4% | 5.8% |
| Professional Services revenue | 11.7 | 9.2 | 27.2% | 21.9% |
| Managed Services revenue | 87.5 | 83.2 | 5.2% | 3.9% |
| Total revenue | 269.4 | 236.4 | 14.0% | 12.0% |
| Gross profit | 63.9 | 47.8 | 33.7% | 34.8% |
| Adjusted administrative expenses | (44.1) | (36.5) | 20.8% | 20.8% |
| Adjusted operating profit | 19.8 | 11.3 | 75.2% | 81.7% |
The International Segment comprises a number of trading entities, nearshore and offshore Service Center locations and countries in which we have other support operations.
The trading entities include Computacenter Switzerland, Computacenter Belgium and Computacenter Netherlands. As in other markets, we focus on working with the largest corporate and public sector customers. Our target corporate customers in these geographies typically have an international footprint and we are well placed to support them outside their domestic markets. We have a small number of important Managed Services customers that are managed from our International Segment and delivered using our Group Managed Services capability.
Emerge 360 Japan k.k (Emerge), which we acquired in May 2022, has Services delivery locations in Japan, Australia, Singapore and Hong Kong. These trading entities are joined in the Segment by the offshore Group Service Center entities in Spain, Malaysia, India, South Africa, Hungary, Poland, China and Mexico, and the Professional Services Delivery Center in Romania, which have limited external revenues as they charge the relevant Group subsidiaries for the services provided. We established further delivery locations in the Philippines and Brazil during the year.
Financial performance
Total gross invoiced income increased by 14.8% in constant currency, with strong growth in both Technology Sourcing and Services revenue. Gross profit increased by 34.8% in constant currency, with gross margin up 350 basis points. Technology Sourcing gross margin increased by 72 basis points and Services gross margin grew by 972 basis points. Administrative expenses increased by 20.8% in constant currency, resulting in adjusted operating profit rising 81.7% in constant currency.
Belgium delivered a strong performance, driven primarily by growth in Technology Sourcing, especially networking, outweighing weaker demand for workplace. Managed Services also performed strongly helped by new business with existing customers and a new multi-year outsourcing contract with a global customer in the financial settlement services industry.
The Netherlands achieved strong growth and made good progress with new business targets. However, one of the largest public sector Technology Sourcing contracts was not renewed in the second half, which is expected have an impact on 2024 performance.
Switzerland had a challenging year, as customers reviewed their hybrid working approach following the pandemic, resulting in a significant decline in volumes in our main Services contracts. We have taken action including increasing our sales activity for national and international opportunities, while resizing our delivery teams. In Technology Sourcing, we have won some significant public sector contracts, especially in the education sector, and won new business by working closely with our preferred technology vendors.
The combined product order backlog at 31 December 2023 was £12.0m, a 50.3% decrease in constant currency since 31 December 2022 (£24.1m) in constant currency.
