LogicaCMG sounds upbeat note

LogicaCMG, the Anglo-Dutch IT services company, reassured investors on Wednesday that it was expecting growth in 2007, as it reported a 23 per cent increase in annual pre-tax profits thanks to a series of acquisitions.

“As we enter 2007, the IT services market remains positive with increasing volumes and a generally improving pricing environment,” said Martin Read, chief executive.

LogicaCMG’s reassurance comes after a warning last month that organic revenue growth in 2006 had been slower than expected.

Mr Read said he was expecting the company’s Netherlands, Nordic and French businesses to grow “at least” in line with the market, at 4-6 per cent.

UK business, which Mr Read admitted had been “disappointing” with just 2 per cent underlying revenue growth in 2006, is expected to see a pick-up following the appointment of Joe Hemming as new UK chief executive in January.

He added that the company’s German business, which has been making losses for several years, had returned to profitability in the second half of 2006.

“The key thing is that we have a much larger, more focused company following two transformational deals in the last 15 months. We have geographical balance now,” Mr Read said. “We didn’t do as well as I would have liked in the the UK, but now it is just one of our regions, whereas in the old Logica days it would have been very painful.”

Logica has spent around £1.8bn over the last year and a half on acquisitions including the purchases of Nordic rival WM Data last August, and Unilog of France in 2005. The moves have doubled the company’s size to 40,000 employees and made it the second-largest listed European IT services company after Cap Gemini.

Mr Read said he felt the company’s shares - which fell nearly 3 per cent to 165½p in early trading - were undervalued, and did not fully reflect the scale of the company’s transformation.

Mr Read said the company’s larger size was allowing it to win contracts it had missed out on before.

“We have now got everything to play for and I think we can get the shareprice up some way,” he said.

Thanks to the acquisitions revenues rose 45 per cent to £2.67bn in 2006. However, stripping out the effects of acquisitions, revenues in LogicaCMG’s key IT services business grew just 5 per cent year on year, with the UK in particular dragging down performance.

Pre-tax profits rose to £129.4m from £104.8m, while basic earnings per share, including exceptional items, fell to 6.7p from 7.3p a year earlier.

LogicaCMG proposed a final dividend of 3.4p, making a yearly total of 5.6p (5.31p).

The company last week said it was planning to return £130m to investors through a share buy-back, after selling its once-flagship telecommunications products business to a private venture consortium for £265m.