Logica forecasts better margins in 2011

Andy Green, chief executive of Logica, said the Anglo-Dutch IT services company was poised to lift revenue and margins this year after a dull performance in key markets kept profits flat in 2010.

Logica results for the full year 2010
SalesPre-tax profitEarnings per shareDividend

Logica said that pricing pressure meant it had to “deliver more work for the same revenue” last year but that lower overheads helped maintain the adjusted operating margin at 7.4 per cent.

The shares closed down 7.8p at 137.5p as investors remained concerned by a £30m ($49m) restructuring charge in the first half that would keep margins below those a year earlier.

Operating profit at Logica’s operations in the Benelux region and the UK, where elections and economic uncertainty had “kept the pricing environment competitive”, fell 40 per cent and 6 per cent respectively.

However, Mr Green said corporate IT spending had begun to pick up after the recession and there were also “signs of life” in the UK government sector.

He added that a strong performance in France and the Nordic countries, and a “sharp recovery” in financial services, put Logica in a good position to increase revenues “faster than the market” and he forecast a “modest” improvement in margins, which have been flat for two years.

A 10 per cent revenue improvement at Logica’s outsourcing operations helped compensate for a 5 per cent fall at its consulting and professional division.

Pre-tax profits in the year to the end of December jumped from £42.6m to £192.9m as costs of £117.5m related to restructuring and disposals were booked the previous year. Adjusted operating profit stood at £272m on sales of £3.7bn, both largely unchanged from 2009. Diluted earnings per share were 9.4p, up from 2.5p. A proposed final dividend of 2.3p gives a total of 4.2p, up from 3.3p.

Logica expects to announce a new finance director by the summer to replace Seamus Keating, who is heading Logica’s Benelux operations.

FT Comment

Mr Green is keen to extol the virtues of having a local language presence in Logica’s European markets and says his group is just responding to its clients by not shifting more work offshore. Nor does he think acquisitions will necessarily help secure more deals. Recent contract wins suggest his strategy could be right. Logica shares are trading at about 10 times 2012 earnings. Given its performance and the fact that Logica is often cited as a potential bid target, this discount to the sector is surprising. Investors have been unduly hung up on Logica’s exposure to the UK public sector, which accounts for just 12 per cent of overall revenues. The group is a steady if not dull performer – the shares have risen 12 per cent over the past year – and these results should give some cause for optimism.

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