Logica cautious on upturn in IT spending

Companies are still wary about increasing spending on information technology, the chief executive of Logica cautioned as the Anglo-Dutch IT services company reported better-than-expected first-half profits after a round of cost savings.

Andy Green said he expected revenues for the IT services sector to move in line with the economy, a more downbeat assessment from earlier this year when he expected the industry to slightly outperform. He expected Logica’s sales for 2009 to fall about 2 per cent.

The comments are in contrast to upbeat comments from French rival Cap Gemini last week, pointing to indications of an upturn.

A key problem is Logica’s business in the Netherlands, which is heavily focused on the troubled banking and manufacturing sectors. Revenue for this region fell 13 per cent in the first half to £309m.

Mr Green said he did not anticipate more redundancies on top of the 1,900 staff reductions the company has already announced. But the company is putting in place a number of schemes to allow staff to take partly-paid sabbaticals, additional holidays and reduced working hours, in order to manage staff costs. About 10 per cent of its staff in Germany cut their hours in the first six months.

“There is a need for a lot of thinking on how to improve efficiency and save costs,” Mr Green said.

Logica lifted revenue 6 per cent to £1.88bn in the six months to the end of June, mainly due to the weak pound. On a pro-forma basis, revenue was down 2 per cent. Operating profit margins, adjusted for exceptional items, were 6.8 per cent, in line with last year. Mr Green said he expected a 7.5 per cent margin for the full year.

Pre-tax profits nearly doubled from £12.6m to £24.2m, and earnings per share rose from 0.4p to 1.3p. The shares, which rallied more than 25 per cent last week, rose 2.6p to 111.6p.