Logica posts profit warning after poor performance of UK business

IT services firm LogicaCMG has issued a profits warning with its quarterly results after poor performance of its UK arm.

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IT services firm LogicaCMG has issued a profits warning with its quarterly results after poor performance of its UK arm.

Logica posted overall IT services revenues of £767.8m, up 4.3% on the previous year. But UK revenues fell 4.1% to £174.6m.

Even the overall figures for the quarter mark a slump after full year results for 2006, posted in February, showed operating profits up 30% and revenues up 45.3%. Approximately 90% of the company’s revenues are generated by its IT services business.

The company described its UK performance for the first quarter as “disappointing” across all commercial market sectors, although this was “somewhat compensated” by its strong public sector business, where revenues went up 10%.

Chief executive Martin Read said: “We are disappointed that our performance in our UK commercial businesses, including cost overruns on a long term contract, has overshadowed strong growth in our other key territories. We are taking actions to address the issues in the UK.”

The poor results were mainly due to the conclusion of a contract in the industry, distribution and transport sector and a slow start on framework agreements in the energy and utilities sector, Logica said.

The UK business had also been hit by a cost overrun expected to be between £10m and £15m on a long-term private sector contract. Logica did not name the client company, but said: “We have now taken a number of actions to stabilise and improve the performance of the contract.”

Logica is also seeking to cut expenditure – a move that is expected to cost £2m but produce an equivalent saving by the end of 2007.

First half underlying profits in the UK would be approximately 3% lower than predicted, because of lower revenues and the costs associated with overhead reduction, Logica warned.

The company is expecting its UK business to pick up in the second half of the year, but full year revenues are still expected to be slightly lower than in 2006.

In February, Logica sold off its telecoms products division £265m, in a move aimed at focusing the company more on its core IT and business services work.

The company also signed a five-year £11.5m deal with the Foreign Office to replace its web platform and upgrade its website.

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