LogicaCMG justifies growth strategy (FT)

Martin Read, chief executive of LogicaCMG, yesterday mounted a robust defence of his latest acquisition as the IT services group reported half-year results heavily affected by a previous deal.

Profit fell sharply from the cost of integrating Unilog, the French company acquired in January, while revenues rose, helped by the integration.

Pre-tax profit fell 21 per cent to £29.5m in the six months to the end of June; revenues rose 39 per cent to £1.24bn.

Mr Read admitted that the market reaction to last week's announced SKr11.9bn (£870m) acquisition of WM-data, its Swedish rival, was "disappointing". Shares in LogicaCMG have fallen 10 per cent since the deal was announced. Yesterday, they fell 6½p to 153½p.

But he said the integration of Unilog in France, with pro forma revenue growth of 7.6 per cent in the country, showed LogicaCMG could digest its large acquisitions and use them to win new contracts.

After the announcement of the Unilog deal, LogicaCMG's shares fell but then recovered. "I think we'll see a Unilog here," said Mr Read of the market reaction to his latest acquisition.

One concern for analysts is there will be a "flowback" from WM-data investors selling shares in the new combined group to reinvest them in Nordic markets.

Seamus Keating, LogicaCMG's finance director, said he had spent a day last week talking to shareholders and had "got the sense that they were willing and able to be holders of the stock of the larger group going forward".

Earnings per share were 0.7p (2.7p). The dividend rose from 2.11p to 2.2p.

FT Comment

*Is there any point in building an empire? Mr Read believes IT services companies need to be big or risk being outgunned for international contracts. But there are plenty of sceptics who believe WM-data adds little beyond scale. Yesterday's results show Unilog was integrated successfully. A sign of whether investors believe Mr Read can do the same with WM-data will come as shareholders in the Nordic company decide whether to stick with shares in the new enlarged group in the coming months. On a multiple of about 15 times 2006 forecast earnings, those shares look inexpensive. And Mr Read has indicated a pause in the grand expansion plan, which should reassure some.

Copyright The Financial Times Limited 2006