February 24, 2010 9:05 am

Logica warns of drawn-out recovery

Logica, the UK-based IT services company, reported a 3 per cent fall in sales for 2009 and said 2010 revenues would be flat as the economy made a slow recovery.

Andy Green, chief executive, warned of a slowdown in the company’s UK public sector business following the general election, particularly if there was a hung parliament, with no political party securing a clear victory.

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Public sector contracts have been one of the strongest areas of Logica’s business during the downturn, accounting for just under two-thirds of revenues in the UK. However, there are fears that if a Conservative government is elected, there could be drastic cuts to public spending. There will also be an election in the Netherlands this year.

“Whatever happens, deals will take longer to close. We had 13 per cent growth in the UK business last. I am not expecting that this year, although I am still expecting growth,” Mr Green said.

”In the short term there could be a hiatus, but in the medium term all European countries will need to invest in automation to get spending down,” he added.

Mr Green said economic recovery across all sectors was likely to be slow this year.

”For most of our clients life hasn’t returned to the sunny uplands of 2006 and 2007. There will be slow improvements,” Mr Green said.

Revenues for 2009 were £3.7bn, down 3 per cent from the previous year as companies held back on big IT spending projects.

The company’s traditional IT consulting revenues fell by 10 per cent but were partially offset by 9 per cent growth in outsourcing, where Logica takes over the handling of entire parts of a company’s IT systems or business processes. Outsourcing has been a popular way for companies to save costs during the downturn.

Sales to the financial services sector saw deep declines of 20 per cent during the year, and business in the Benelux region fell 19 per cent. All IT services companies have struggled in the region, which is heavily dependent on banking.

Pre-tax profits were £43m, compared with £44m in 2008. The company took £95m in exceptional restructuring costs in 2009, as it trimmed back staff. Mr Green said he did not expect further restructuring costs this year.

Basic earnings per share were 2.5p, down from 2.7p previously, but the company raised its dividend 10 per cent to 3.3p. Mr Green said the move underlined the company’s confidence in the stabilising market.

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