Logica disappoints with uninspiring profits

LogicaCMG, the information technology services group with a history of issuing profit warnings, reported a fall in sales and pre-tax profits yesterday for 2004 and warned that its operations in France remained "challenging".

LogicaCMG, the information technology services group with a history of issuing profit warnings, reported a fall in sales and pre-tax profits yesterday for 2004 and warned that its operations in France remained "challenging".

Martin Read, the chief executive, pointed to an improved performance in the second half of last year as evidence for optimism for the coming year and said the company would benefit from cost savings extracted from problem areas over the past year, including its mobile phone technology business.

The company said sales were £1.66bn, a 2.2 per cent fall compared with 2003, while profits before tax and exceptional items were 2.8 per cent lower at £97.2m. The company also announced it is part of the winning consortium for the Ministry of Defence's £2.3bn information infrastructure project that will deliver £100m in sales to LogicaCMG over 10 years.

But Mr Read's upbeat note fell largely on deaf ears among investors and analysts who have witnessed the company issue a series of profit warnings over the past five years. LogicaCMG's shares fell more than 1 per cent yesterday to 184p.

Gary Rollo, a technology analysts at Morgan Stanley, said: "The main issues for LogicaCMG are that in its core business, in the UK and Benelux, its earnings capacity is peaking while in its non-core businesses, in France and Germany, it is locked in a cash-burning cycle of decay.

"If something goes wrong the company pumps cash into it to fix it short term and takes a restructuring charge but fundamentally in France and Germany these businesses lack scale and suffer from low quality assets. LogicaCMG has insufficient capital to solve the problems. It needs to buy in ... France and Germany to create a wider platform."

The company also provided some information on the impact of new international accounting standards on its finances. Some analysts predicted the company could face a hit of £23m to £24m from its expected operating profits this year of about £138m. This includes an £8m hit from including the cost of management's share-based options and a £5.6m hit from pension fund expenses.

A company spokesman said there was some confusion over the full impact on future operating profits because the company's assessment of which items should fall below the operating profit line was not necessarily the same as that of some analysts.