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August 31, 2005

LogicaCMG eyes acquisitions in France and Germany

IT services vendor LogicaCMG Plc is considering acquisitions in France and Germany to gain the scale it needs to compete against larger rivals.

By CBR Staff Writer

The London, UK-based company reported healthy growth in both revenue and profitability in the first half of the year, but highlighted its loss-making operations in the two countries as problems it needed to address, possibly by building scale through acquisition.

Chief executive Martin Read, said on a call with investment analysts: Customers want to do business with a smaller number of larger suppliers that can support them internationally with a wider range of offerings.

He added: This is a market that is gradually consolidating. We will continue to look at suitable opportunities when they come up. However, any moves would be restricted by the company’s ability to finance them, with its net debt creeping over GBP300m ($541m) in the first half of the year.

In the six months ending June 30, 2005, LogicaCMG increased its net profit 62% to GBP24.1m ($43m), on revenue that rose 10.9% to GBP891.7m ($1.59bn). Operating profit grew 23% to GBP40.8m ($72.8m), giving the company a margin of 4.6%.

The company’s core geographical markets performed strongly in the first half, with sales up 10% in the UK to GBP370m ($660m) on the back of new outsourcing wins, and revenue from its Dutch operation up 14% to GBP199.9m ($357m). The two national units reported operating profit margins of 9.4% and 6.4% respectively.

In contrast, LogicaCMG’s German operation made an operating loss of GBP5.8m ($10.3m) on revenue that fell 14% to GBP39.8m ($71m), caused by recent restructuring and a poor performance by its business in the industry, distribution and transport sector. LogicaCMG France reported an operating loss of GBP3.7m ($6.6m) on revenue that grew 13% to GBP57.6m ($103m).

The company’s Wireless Networks division, which includes its text messaging software business, reported an operating profit of GBP1.2m ($2.1m) on sales that rose 7% to GBP120m ($214m). However, sales of its multimedia messaging software systems were flat.

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Read said that the company’s order book increased 50% during the first half of the year, driven by new outsourcing orders from clients including Thames Water, the London Metropolitan Police and Energias de Portugal.

The last deal saw LogicaCMG acquire EDP’s internal IT division Edinfor, which was partly responsible for the increase in revenue during the first half. However, if numbers from Edinfor were stripped out, sales grew 8% at an organic level.

Investors responded positively to the results, which shares rising 3.4% to 183.50p in morning trading on the London Stock Exchange, giving the company a market capitalization of GBP1.4bn ($2.5bn).

Read painted a generally positive picture of the IT services sector, describing a gradual improvement in market conditions in the first half. He said that pricing remains stable, adding; Where skills are in demand, it has been possible to pass some rate increases on to customers.

However, Read said that increasing use of offshore delivery models for services such as applications maintenance and management limited the potential for any significant increase in rates. LogicaCMG has 1,500 people at its low-cost offshore operation in India, which represents 7% of its headcount that stood at 20,732 at the end of June.

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