LogicaCMG names Jim McKenna interim CEO; reports falling revenue in UK

Source: LogicaCMG

The Board of LogicaCMG announces today changes to the Board and management.

The Nominations Committee of the Board, supported by its external advisors, is making progress on identifying a successor to Martin Read. Our executive search firm is working on a shortlist of suitable candidates for consideration and the Board remains focused on appointing the best candidate to run the business and deliver value to shareholders. Martin Read (57), who gave the company notice of his retirement on 27 May, will leave the Board on 21 September.

To ensure that the business is effectively led while the search for a permanent successor is ongoing, Jim McKenna, currently LogicaCMG's Chief Operating Officer, will assume the role of interim Chief Executive following Martin's departure. Jim McKenna, (52) has been a member of the LogicaCMG Board since 2002, and an executive director of the Company since 1998.

The Board is also announcing the appointment of David Tyler (54) as a Non-Executive Director. He will join the Board with immediate effect and will assume the role of Deputy Chairman, jointly with existing Deputy Chairman Wim Dik. He has also been appointed to the Nominations Committee where he will be active in the selection of a new Chief Executive. David was Group Finance Director of GUS plc, the retail and business services group, from 1997 until late 2006. He left in 2006 following the demerger which created publicly-listed companies, Experian Group Limited and Home Retail Group. He is currently Chairman of 3i Quoted Private Equity and a Non-Executive Director of Reckitt Benckiser plc, Experian Group Limited and Burberry Group plc. Prior to joining GUS plc, David held senior positions with Unilever plc, County NatWest Limited and Christie's International plc.

Cor Stutterheim, Chairman, said: "The Board, working with its advisers, is making progress in identifying a successor for the role of Chief Executive. As part of our ongoing review of the Board, we are delighted to welcome David Tyler as a Non-Executive Deputy Chairman. David brings extensive experience in managing publicly quoted UK companies which will be invaluable to us, particularly as the search for a new Chief Executive progresses. We would like to thank Martin for his important contribution to the business during his fourteen years as Chief Executive and wish him well for the future."

David Tyler, Deputy Chairman, said: "I am very pleased to be joining the LogicaCMG Board at this key point in its development. I believe the business has great potential and I look forward to working with the team in maximising value to shareholders in the years ahead."

Separately, LogicaCMG has today issued the following trading statement (1): Revenue in the first half was up 36% on last year to £1,520 million (H1 2006 actual, IT services: £1,120.1 million). This represented growth of 3.3% on a pro forma (2) constant currency basis.

United Kingdom

Due to anticipated weakness in the commercial sectors, first half revenue was down 9% on last year. This weakness was partially offset by public sector revenue growth of 7% in the first half. The impact of the IDT contract concluded at the end of last year represented approximately half the decline in UK revenue in the first half.

Book to bill was 1.05:1. A strong public sector order intake continued to drive the book to bill, with the public sector representing just over 60% of the orders booked. Within the Public sector, demand for project work drove increased orders in Space and Defence. Within the commercial sectors, we have made progress on winning orders and identifying new opportunities within our existing framework agreements in the Energy, Utilities and Telecoms business. We have also been selected as the preferred supplier for managed testing within a major telecoms contract. Our contracted order backlog and expected renewals currently represent over 60% of our second half revenue forecast for the commercial sectors. Including the weighted pipeline of opportunities in these sectors, we have visibility of substantially all our commercial sector revenue. In line with our previous guidance, we expect sequential revenue growth in the second half, with full year UK revenue slightly lower than 2006.


Revenue in the Nordics was up 7% on a pro forma basis, including Caran revenue of £27 million up to 4 June 2007 (2006: £25 million). The Swedish business continues to be the major driver of regional growth, with a steady demand for ongoing work with existing customers. Initial cross-selling wins are encouraging, with £13 million of small cross-selling orders recorded in the first half. New or extended outsourcing agreements have also been sssigned with Volvo Cars, Alfa Laval and facilities services company ISS.


In France, revenue was up 10% on a pro forma basis, with increased headcount and greater use of subcontractors allowing us to meet demand to deliver a good first half across all sectors. Strong growth was seen in existing contracts with EDF, Carrefour and the French Ministry of Defence. Order intake was healthy, with good progress in the public sector and financial services. New public sector projects included the Foreign Ministry and the Employment Agency. We have been awarded six individual contracts greater than €5 million, totalling approximately €70 million. This includes a €15 million applications management project for a major bank, following our selection as a preferred supplier earlier in the year.


In the Netherlands, revenue was up 8% compared to last year. The public sector growth was particularly strong in the first half and a major contributor to strong year on year revenue growth in the Netherlands. In the financial services sector, we have had a number of smaller wins with existing customers. The pipeline in the Netherlands remains solid with growth expected to outperform the market. In early July, we signed a letter of intent for the divestment of our non-core payroll business. The divestment will not have a material impact on 2007 revenue (it accounted for less than 2% of total Netherlands revenue in 2006). The business being divested provides solutions primarily for the SME and local government market and represented only one-quarter of the overall HR and payroll product services revenue in the Netherlands. We will continue to invest in the core HR and payroll BPO solutions business.


We have made further progress in Germany with revenue growth of 10% on a pro forma basis in the first half and continued profitability in the second quarter. Headcount increased by over 2% in the first half, with over 200 external recruits joining the business.


Despite lower revenue in Asia following the completion of the development phase of the Natrindo contract at the end of 2006, revenue in the International business was at the same level as last year on a pro forma basis. Revenue from the Edinfor business remains at a similar level to last year.


We had a total of 38,496 employees at the end of June. Excluding the impact of the previously-announced disposals of Telecoms Products and Caran, our headcount increased by 2% in the first half. In a competitive market, we have seen attrition at broadly similar levels to 2006. We expect to increase salaries slightly more than last year. As in the past, we expect to offset this through rate increases and a change in the mix of resources deployed on certain contracts.


Our outlook on market demand remains unchanged, with European market growth expected to be between 4% and 6%. As indicated at the time of our May trading update, we still expect revenue growth around the lower end of this range for 2007. Adjusted operating profit will be slightly more second-half weighted than last year, mainly due to UK commercial sector weakness in the first half and first half costs disclosed previously.

Based on the progress of the legal structure integration following the acquisitions in recent years, we are now able to accelerate the benefit of historic tax losses in 2007. Combined with other anticipated tax deductions, we expect the effective tax rate in 2007 to be around 20%, compared to our previous guidance of 26%. The tax rate beyond 2007 is expected to be around 23%.

Following the completion of the Telecoms Products disposal on 19 June, we have begun the previously announced £130 million share buyback. At the close of business on 17 July, we had purchased 14,975,000 shares in the market (representing approximately 1% of the issued share capital at the end of 2006) in the market at an average price of 1.5143p. We now expect the weighted average share count for the year for EPS purposes to be approximately 1,500 million.

In a separate announcement issued today, we have announced a number of changes to the LogicaCMG Board and management.


(1) Percentages are based on unaudited numbers for the six months ended 30 June 2007.

(2) Comparatives are based on pro forma IT services revenue and exclude pdv.com and No Limits. Adjustments have been made for non-recurring passthrough revenue in France which was reported in 2006. The comparatives have also been adjusted to include Caran revenues to the beginning of June 2006 and Siemens Business Services for the nine months from March 2006 and to reflect current exchange rates for our principal currencies.

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