Acquisitions lift revenues at LogicaCMG

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Interim pre-tax profits at LogicaCMG fell 21 per cent but the computer services group said that it was sticking with its expectations for the full year following a series of major European acquisitions.

The Anglo-Dutch computer services group said revenues grew 39.4 per cent to £1.24bn following the acquistion of Unilog in France last year, with pro-forma revenue growth of 5.2 per cent.

LogicaCMG has major operations in the UK, the Netherlands and France - following the acquisition of Unilog. In addition, the group will soon have operations in the Nordic region, after last week’s £882m recommended offer for WM-data. However, the deal worried investors who felt that LogicaCMG may have overpaid and shares tumbled 8 per cent in the aftermath of the announcement.

“It has been a good first half, with 22 per cent underlying growth in operating profit on a pro forma basis,” said Martin Read, chief executive. “The Unilog integration and cost savings are proceeding well and we have seen encouraging initial revenue synergies.”

Gareth Evans, analyst at Investec, said that the first half results were broadly in line with expectations, with a good performance in France more than compensating for the slightly weaker than expected profitability in the UK, where margins were about 90 basis points lower than forecast at 9.1 per cent.

However, Patrick Standaert, analyst at Bear Stearns, said that the group’s reported operating margin of 3.4 per cent was only in line with expectations because of the exclusion of higher-than-expected restructuring charges and other intangible amortization.

The group said that restructuring was proceeding according to plan, with an expected £28m in costs, of which £23.6m was incurred in the first half. Most of the cost savings will be at the group’s German operations which LogicaCMG said would end the year in profit.

LogicaCMG said that demand for IT services was improving and order intake was strong with a book to bill ratio of 1.15:1. However, the group said that new graduates were becoming scarce in its main markets. As a result, offshoring was becoming increasingly important, it said.

Looking forward, LogicaCMG said it had no plans to change its expectations for the year as demand had continued to improve, cost savings at Unilog should reap benefits in the second half and contract workers would be able to cover any shortfall in the tightening labour market.

The market was still not impressed, however, and in mid-afternoon trade, LogicaCMG shares were down 3¼p or 2 per cent to 156½p. However, Merrill Lynch said in a note that “it did not anticipate making any material changes to its estimates”.

Mr Evans said he thought the shares would “need some time to digest the proposed acquisition of WM-data”, but that the current valuation “leaves room for the stock to snap back, as post the Unilog acquisition last year, once the WM-data acquisition has been accepted for its strategic merits as well as its issues.”

The group did raise its dividend by 4.3 per cent to 2.2p a share.

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