LogicaCMG promises profit after revenues fall

Losses narrowed last year at LogicaCMG, the computer services group, but turnover fell, prompting the market to downgrade the technology company's shares by more than 5 per cent, threatening its much anticipated re-entry into the FTSE 100.

Martin Read, the company's chief executive, shrugged off the market's reaction to Logica's results, announced yesterday, insisting the company was well set to turn last year's £33m pre-tax loss into a profit by the end of this year. The company made a loss of £734m in 2002. Sales, however, were 6.4 per cent lower last year at £1.7bn.

Some analysts expressed disappointment at Logica's comments on its business outlook but Dr Read said he believed some may have got ahead of themselves, particularly over the growth prospects for high speed, third generation mobile phone services for which the company supplies essential software.

Logica said 3G would deliver "steady growth" in years to come, not the explosive expansion many analysts had been expecting, especially those who visited the 3GSM mobile phone trade fair in Cannes last week where many operators were talking optimistically about 3G services. However, analysts were not given any reason to upgrade expectations for 2004 and 2005 leaving many investors disappointed.

Dr Read said the underlying performance of Logica had improved markedly in the second half of the year, as revenue declines started to reverse. He said the merger between Logica and CMG, which formed the group a year ago, had already started to deliver improvements with operating profit margins in its wireless network operations and IT solutions business improving.

Wireless networks had operating margins of 6.5 per cent in the second half of the year compared with 0.9 per cent in 2002. IT solutions saw margins rise to 8.1 per cent in the latter half of last year from 7.77 per cent in 2002, although Dr Read said that part of the company's business was displaying patchy results. A particular problem market was Germany, he said, where the economic slowdown continued to depress companies' capital expenditure.

"The IT services sector has just been through the worst three years of its life," said Dr Read. "You are right to say revenue is down again in 2003 but in the second half it bottomed out and we are turning the corner on the way up," he said.

The LogicaCMG merger had also started to deliver contract wins from larger, multinational clients, said Dr Read. Customers such as Vodafone and Shell, the oil company, had proved reluctant to award certain contracts to Logica and CMG when they were separate companies because of their smaller scale and limited geographic spread. However, together, the two were now "sitting at the top table" for contract wins, according to Dr Read.