Shares in LogicaCMG plunged nearly 13 per cent in early deals today after the Anglo-Dutch IT services group issued a profits warning, blaming a “disappointing performance” in the commercial UK market.

Its shares later recovered slightly but were still down more than 9 per cent or 16.75p to 163.75p.

The company, which has expanded aggressively in an effort to break into the industry's top tier, now expects revenues and margins in the UK to be lower in the first half of 2007 than the same period a year earlier. Full-year revenues for the territory are also “slightly lower” than 2006.

The shares were also hit by an unexpected provision of between £10 million and £15 million to cover cost overruns on a long-term UK contract.

Seamus Keating, the finance director, said: “Given the material nature of the provisions, we don’t expect to be able to compensate those costs by improvements in performance in other parts of the business.”

LogicaCMG said first-quarter UK revenue was down 4.1 per cent from the same period a year ago, at £174.6 million. The group added that it expects second-quarter revenues to be lower than the first.

First-half underlying margin in the UK was expected to be about 3 per cent lower. Logica said its public-sector business in the UK remained strong.

Overall IT services revenue in the first quarter rose 4.3 per cent on a pro-forma constant currency basis to £767.8 million.

The group said in a statement: “We achieved strong organic revenue growth in the Nordics, France and the Netherlands, offsetting a revenue decline in the UK in the first quarter.”

Underlying revenue growth came in at 8.1 per cent in France, with revenues in the Nordics and the Netherlands each rising 9 per cent. Its German operations saw continued profitability.

Earlier this year LogicaCMG unveiled plans to return £130 million to investors through a share buyback after selling its SMS text messaging business to a private equity consortium for £265 million in cash.

Logica said the sale would help it focus on expanding its IT services business. The group is the 12th largest IT services company in Europe and has spent about £1.8 billion on acquisitions over the past 18 months as it strives to become a top-ten global player.

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