The London-based company, which issued a profit warning in May, said the fall in revenue was partly due to the negative impact of a contract concluded late last year with Transport for London. While public-sector sales were up 7% in the six months to the end of June, this was not enough to offset the losses from the commercial business.
LogicaCMG reiterated its earlier forecast that UK revenue in the second half of the year would be up sequentially on the first six months, but that full-year sales in the region, which generates about 27% of the company’s annual sales, would be slightly lower than 2006.
Across the whole business, LogicaCMG’s sales in the first half of the year were up 3.3% on a pro forma constant currency basis at 1.5bn pounds ($3.1bn). The company reported organic growth of 10% in both Germany and France, 8% in the Netherlands, and 7% in the Nordic region.
Our outlook on market demand remains unchanged, said LogicaCMG, with European market growth expected to be between 4% and 6%. However, the company added that it expects actual growth to be at the lower end of this range in 2007.
In a separate announcement, LogicaCMG said it is making progress in its search for a new CEO to replace Martin Read, who is set to leave the company on September 21. On Read’s departure, COO Jim McKenna will assume the role of chief executive until a replacement is found, while David Tyler, formerly of retail and business services outfit GUS, has joined LogicaCMG as deputy chairman. Tyler will also join the nominations committee and play a role in selecting the new CEO.
Our View
Despite revealing a 9% fall in UK sales, market reaction to LogicaCMG’s latest trading update has been generally upbeat. The company’s shares rose 5% in morning trading on the London stock exchange as investors preferred to focus on the positive aspects of the announcement.
First, sales growth in the rest of Europe was impressive, particularly in traditionally tough-to-crack markets like France and Germany. Second, analysts were already braced for poor results from the UK following LogicaCMG’s profit warning back in May. As it turned out, while the performance of the company’s commercial business was as bad as expected, public-sector sales were strong.
The uptick in LogicaCMG’s shares may also be partly due to the fact that some analysts view the company as a potential takeover target. Recent speculation over consolidation in the European IT services space has tended to focus on Capgemini and Atos Origin but LogicaCMG, which is still to find a replacement for departing CEO Martin Read, in many ways represents a more attractive option.
The company has expanded its presence in key European markets through targeted takeovers in France, Sweden, and Portugal, and has shed some of its non-core activities in recent months, including its telecoms software arm.
The most likely suitor for LogicaCMG would be a private equity firm. The company’s European rival Atos Origin recently turned down a private equity takeover bid, so it is possible that an outfit with the funds to fuel a major buyout could turn its attention to LogicaCMG instead.
