Logica benefits from clients’ cost cutting

Strong orders in the final three months of last year helped Logica, the IT outsourcing specialist, to beat profit expectations, as the financial crisis forced European companies to outsource more business.

Andy Green, chief executive, said the group’s order pipeline had increased 50 per cent since August, as its customers considered shifting business processes to Logica’s cheaper offshore locations such as India and Morocco.

Staff numbers at Logica’s offshore centres rose from 3,450 to more than 5,000 in just eight months, compared with a group total of nearly 40,000.

Total revenues for the year to December 31 rose 17 per cent to £3.6bn, ($5.1bn) thanks in part to a strong euro, with growth in the UK and Nordics business offsetting weakness in Germany and the Netherlands. The revenue rise was only 5 per cent on a pro forma basis.

Pre-tax profit fell 48 per cent to £44m after taking £84m in restructuring costs. Total earnings per share fell from 11.4p to 2.7p. As previously indicated, the dividend fell 48 per cent to 3p per share. On an underlying basis, however, profits are growing – excluding the exceptional charges, operating profit rose 14 per cent to £267m, reflecting margin improvements.

Mr Green also forecast first-half revenues would be in-line with 2008 on a constant currency basis and raised his 2009 cost savings target from £50m to £75m.

● FT Comment

On his arrival a year ago, Andy Green pinpointed improving both Logica’s sales and its offshoring operations. Results on Wednesday showed clear progress. Free cash flow was also much better, indicating the business is being run more tightly. In 2008, there was also an absence of the intermittent profit warnings that Logica used to be renowned for. The fall-off it suffered in the fourth quarter was no different from rivals’. This year is shaping up for strong growth in the UK public sector, energy, utilities and telecoms, offsetting a declining financial and industrial market. The growing sectors account for only 53 per cent of revenues so analysts are forecasting flat revenue at best for the year. That would suggest its forward price-earnings ratio of 6 times, in-line with the sector, is fair. But if profit margins can be further improved, there is a chance of upgrades later in the year.

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