‘Unfortunate combination’ hits Logica CMG

Shares in LogicaCMG fell as much as 13 per cent on Tuesday after the Anglo-Dutch IT consultancy issued a profits warning blaming poor performance at its UK business.

The company, the seventh-largest IT services provider in Europe by revenues, said first-half revenues and margins at its UK business would be lower than last year and full-year revenues would also fall below 2006.

The company said it had been hit by a combination of poor performance at its UK private-sector business and expenses related to the overrun of one UK project, which would cost the company £10m-£15m in the first half.

First-quarter revenues were down 4.1 per cent at £174.6m.

“We have had an unfortunate combination of a downturn in UK trading and a one-off provision on a contract. But these are not huge problems or strategic problems,” said Martin Read, chief executive.

The fall in revenues comes after a disappointing 2006 for the UK business, with growth of 2 per cent. The company had been hoping to see a pick-up following the appointment of a new UK managing director earlier this year.

Analysts downgraded profits forecasts for LogicaCMG by 8 per cent to 10 per cent for this year.

Overall revenue growth for the group was 4.3 per cent in the first quarter, lower than its own forecast of 5 per cent.

LogicaCMG is facing tough price competition in the UK, particularly from Indian IT rivals such as Wipro, TCS and Infosys, so it is accelerating moving some staff to lower-cost offshore locations. This will cost £2m and involve the loss of some jobs.

Mr Read said the UK problems were “frustrating” but said they vindicated the company’s aggressive overseas acquisition policy.

Shares in LogicaCMG closed down 9 per cent at 164¼p.