Increased scale from merger delivering benefits - strong order intake - UK returned to growth - cost savings ahead of forecast
Dr Martin Read, LogicaCMG group chief executive, said: “Against a challenging economic background, our first six months as a merged company have exceeded our original expectations. The integration programme is well advanced with savings ahead of plan, giving us a more competitive cost base. Combined with our larger scale, this has enabled us to grow our order book substantially. We are bidding and being short-listed for a number of major tenders such as the NHS IT procurement in the UK.
“Cross-selling is gaining momentum across the group. There is continuing evidence of pricing stability in our key territories and the UK business has returned to growth. However, the Benelux economy remained fragile with revenues declining by 4% in the first half. In France and Germany, market conditions continued to be very difficult.
“Wireless Networks defined the product roadmap early in the merger and significantly increased market share in the MMS sector with eight wins in the period. With the cost reduction programme broadly complete we are confident that this business will be profitable for the full year.
“Outsourcing continues to be an engine for growth and the share of revenues which came from our outsourcing activities grew to 19% from 16%.
“The restructuring programme is now largely complete and we will see more benefits coming through in the second half of the year. This will contribute to improving margins in the second half.”
Financial Headlines:
For the six months ended 30 June 2003, LogicaCMG plc financial results (adjusted* for goodwill, restructuring charges and other exceptional items) were as follows:
· Order intake was strong with a book to bill ratio of 1.12:1
· Revenue was £854.3 million, (3% lower on previous six months)
· Operating profit* was £46.2 million, (22% lower on previous six months)
· Group operating margin* at 5.4% (6.7% in previous six months)
- IT services operating margin* at 6.5% (8.1% in previous six months) - Wireless Networks close to break even*
· Profit before tax* was £39.4 million, (28% lower on previous six months)
· Cash flow from operating activities* was £47.3 million, representing a cash conversion of 102%
· Adjusted basic earnings per share** (EPS) 3.7p down 29% compared with the previous six months
· Net debt, at 30 June 2003, stood at £186.3 million (£107.1 million at 31 December 2002)
* Unadjusted loss before tax £57.7m; unadjusted operating loss £50.9m ** EPS before goodwill, restructuring charges and other exceptional items, net of tax; unadjusted basic loss per share.

OUTLOOK
Against a challenging economic background, our first six months as a merged company have exceeded our original expectations.
The integration programme is well advanced, with savings slightly ahead of plan, giving us a more competitive cost base. We are starting to see encouraging results from cross-selling and are increasingly benefiting from our greater scale in supplier rationalisation initiatives across our customer base. Order intake in the first half was strong with an overall book to bill ratio of 1.12:1, providing a solid start to the second half.
In IT Services, the first half book to bill ratio was 1.13:1. The UK business returned to growth, fuelled by outsourcing success. Conditions remained challenging in Mainland Europe. These market conditions have continued since the end of the first half. Furthermore, with the greater impact of cost-savings, we expect second half margins to be above 8% (compared to 6.5% in the first half).
In Wireless Networks second quarter revenues were well ahead of the first quarter and we are encouraged by the levels of activity and increased momentum in the business. As a result, we expect flat second half revenues despite the impact of the holiday season. The cost reduction programme is broadly complete and some further benefits will be realised from relocation of activity to India. We are therefore confident that this business will be profitable for the full year.