CMG axes 470 jobs and warns of sharp downturn

The Anglo-Dutch IT services business CMG shocked the market yesterday by warning of a sudden downturn in its UK business, forcing it to axe 470 jobs and sending its shares down 21 per cent.

Separately, the German software maker SAP also fell prey to the harsher trading conditions, issuing disappointing third-quarter figures while warning that 2001 revenues were now expected to grow by 15 per cent rather than 20 per cent.

The double dose of bad news sent shares in Logica, a rival IT services company, down 8 per cent, as the markets fretted it would also be affected. Last month, it laid out plans to cut 5 per cent of its 5,000-strong workforce, equating to 250 job losses.

CMG said that the bulk of its job losses, some 3 per cent of its 13,800 strong workforce, would fall in the UK. Around 350 jobs will be lost from its services division and a further 117 from its mobile telecom products business, Wireless Data Solutions, in research and development.

Almost 200 jobs will go from its offices in London and the South-east, around 140 from its bases in the Midlands, 50 in the North, 40 in Ireland and 30 in the South-west. Another 10 positions will be lost from its European offices. CMG is taking a £6.5m charge to cover the move, which it expects will save it around £20m a year.

Cor Stutterheim, the chairman, said he was working on the basis that sales in excess of £15m had been lost in the UK after customers in the finance, logistic and transport sectors either deferred or cancelled projects. Margins in the Benelux also took a hit from the unpredictability of orders.

"Since the summer, it took longer to take orders. What we saw following 11 September, not on the 12th but late in the month and still ongoing, was the cancellation and deferrals of projects that we had in our pipelines," he said.

The company said second-half revenues in its UK services business would now be lower than the £129.5m recorded last year while profits would be all but wiped out. Analysts slashed their forecasts for CMG and now expect a 2001 pre-tax profit of more like £36m compared with expectations of £70m to £150m at the start of the year. For 2002, forecasts were cut to around £70m from £110m. The move follows CMG's April alert when it warned of weaker turnover growth in its WDS arm.

Mr Stutterheim said it was still too early to tell whether WDS would win repeat orders from the mobile phone operators because those customers did not have to take decisions until late December. He said he also expected a slow start to 2002.