IT services vendor LogicaCMG said it remains on the hunt for a new top executive after reporting a solid first-half performance, despite persisting problems in the UK.
In the six months ended June 30, net profit came in at 149.4m pounds ($300m) compared to 10.3m pounds ($20.6m) in the year-ago period, after a 122m-pound ($245m) gain from the disposal of its telecoms products unit.
Revenue rose 36.2% to 1.53bn pounds ($3.07bn), which included a pro-forma sales rise of 3.5%. The company claimed to have outgrown the local markets in France, the Nordic region, Netherlands, and Germany, but this was partially offset by an 8.3% decline in UK revenue.
The UK has been the company’s trouble spot for several quarters, and LogicaCMG said it was suffering from weakness in the commercial sector, despite of what it described as good underlying demand. It said M&A activity in the financial services sector was having a dampening effect on its consulting business, and it also suffered from the loss of a major contract with Transport for London.
Despite growing concerns over the fall-out of the US sub-prime mortgage collapse, the company’s COO Jim McKenna said the company’s outlook remains unchanged with healthy demand in its major markets. It expects full-year 2007 sales to grow by about 4%.
Outsourcing accounted for 31% of first-half revenue, up from 28% in the year-ago period, and the company expects this figure to inch up toward the 40% mark. It said this would be driven by the general market trend of clients working with few suppliers resulting in more complex deals being awarded, as well as growing acceptance of outsourcing in continental Europe.
Like all major IT services suppliers, LogicaCMG is rebalancing its workforce in the favor of skills in low-cost locations such as India and eastern Europe. The company had 6,900 or 18% of its total headcount based in near-shore and offshore locations at the end of June. LogicaCMG increased its total workforce by 2% in the first half, but said that it had been reliant on sub-contractors to help it meet demand in the Nordic region and France.
McKenna said the company is making progress in its search for a replacement CEO following the departure of long-term incumbent Martin Read earlier this year. He also confirmed that David Tyler had been appointed as the company’s chairman following the retirement of IT services industry stalwart Cor Stutterheim.
LogicaCMG’s search for a new CEO goes on, and until the company fills the vacant bridge seat, it will continue to look vulnerable to takeover approaches.
The company’s shares fell almost 3% to 154p in morning trading on the London Stock Exchange following the results announcement, giving LogicaCMG a market capitalization of 2.3bn pounds ($4.6bn).
While the prospect of interest from the private equity sector seems to have been punctured by the US credit squeeze, LogicaCMG could get caught up in the heightened M&A activity in the European IT services market in 2007, which has seen Xansa, Getronics, and France’s GFI the subject of takeover bids. UK applications outsourcer Xansa was approached by Steria after its chief executive Alastair Cox stepped down.
LogicaCMG is not alone in suffering in the UK market. French rival Atos Origin has struggled to get momentum going in new contract wins in recent quarters. One of the challenges facing established players in the UK is aggressive price competition being driven by the major Indian services vendors.
While LogicaCMG has yet to grow its offshore delivery capabilities to the level of some of its major rivals (Capgemini has 22% of its headcount based in low-cost delivery centers), it is making progress and highlighted that clients in France and the Netherlands were increasingly making use of LogicaCMG’s facilities in Morocco and the Philippines respectively.
The Nordic region has overtaken the UK as LogicaCMG’s largest market, underlining the benefits of its M&A strategy which saw it reduce its reliance on its domestic market through the purchases of Sweden’s WM-data and France’s Unilog.