LogicaCMG posts half year trading update
19 July 2006 | 1669 views | 0
Trading for the first half was well ahead of last year and in line with our May trading update.
The IT services market remains strong and we are particularly pleased with our progress in winning outsourcing contracts in continental Europe. In addition to the Memorandum of Understanding with ING for applications management outsourcing, development and testing which we expect to be booked as an order in the second half of the year, we signed a €70 million, 5-year contract with InBev and a 2-year framework agreement with the Netherlands Workers' Insurance Authority (UWV).
Under the InBev contract, LogicaCMG will be a key strategic partner for pan-European applications management while the application development and maintenance contract with the UWV builds on our existing position in the public sector in the Netherlands. In France, we have had two major wins which build directly on Unilog customer relationships and LogicaCMG expertise and which we expect to be able to announce shortly. We are also seeing strong demand for shorter term consulting and project assignments, particularly in the UK and the Netherlands.
Revenue in the first half was in line with our expectations. We continue to expect 2006 organic revenue growth to be ahead of last year's 5.3%, with revenue growth being driven in our major markets by improvements in Financial Services and Industry, Distribution and Transport (IDT).
As a result of the lower level of pass-through materials revenue in the first half, UK revenue was slightly below last year. Increases from Financial Services and IDT broadly offset lower Energy and Utilities revenue. UK public sector revenue was stable despite the more challenging market as we recorded initial revenue under our recently-announced £80 million Defence Medical Information Capability Programme contract with the UK Ministry of Defence. In the Netherlands, strong demand in Financial Services and IDT as well as a strengthening public sector continued to drive revenue growth. French revenue growth was in line with our expectations, benefiting from a market that continues to perform well. In Germany, revenue was stable despite the more complex integration process in merging two operations of similar size.
Our Telecoms Products revenue continues to be slightly ahead of last year. We are seeing increased interest in our Unified Messaging product portfolio, particularly in the North American market but remain cautious about the phasing of growth in this area.
Our buy out of the remaining Unilog shareholders was completed on 10 July 2006 and Unilog shares have now been delisted from Euronext Paris. The Unilog integration and cost savings remain on track and we have seen encouraging initial revenue synergies. Our focus in Germany in the first quarter was on planning the cost synergies and implementing a new structure. With this new structure implemented in the second quarter and with the accelerating pace of our cost savings, we are increasingly confident of exiting the year with a profitable run rate in our German business, in line with our previous guidance.
In 2005, group adjusted operating margin on a pro forma basis was 7.2%, with the first half at 5.3%, reflecting the normal seasonality of the business. As expected, group adjusted operating margin for the first half of 2006 was stronger than in 2005. The profile of operating profit between the first and second halves is expected to follow the normal seasonal pattern. In addition, the cost savings from the Unilog acquisition will largely benefit the second half. As in previous years, our cashflow was seasonally weaker in the first half of 2006, influenced by a strong fourth quarter in 2005. Overall, our expectations for the year remain unchanged.
As previously indicated, improving market conditions are resulting in a tightening labour market and inevitably, there is increased use of contract labour to satisfy demand. We are recruiting aggressively in our major markets to ensure we have the right skills at all levels and to reduce the use of subcontractors. We also continue to make greater use of offshore resources.
Commenting on the half year trading update, Dr. Martin Read, LogicaCMG Group Chief Executive, said:
"We are pleased with our performance in the first half. The Unilog integration and cost savings remain on track and we have seen encouraging initial revenue synergies. Overall, our expectations for the year remain unchanged."
As previously indicated, LogicaCMG's interim results presentation is scheduled for 30 August 2006. We will provide unaudited 2005 pro forma numbers including Unilog and Edinfor at the interim results.
Note: Comparative numbers are on a pro forma basis, as if Unilog and Edinfor were consolidated from 1 January 2005.