Wednesday, 4 November 2009

Logica stable

(By Richard Holway 8.00am Wed 4th Nov 09) Logica’s IMS for Q3 to 30th Sept 09 shows revenues down 4% on Q2; at £2.73b, that’s 3% down YTD.

The picture is now pretty familiar:

- Outsourcing was the star driver. Up 11% in both Q3 and YTD. Looks like order intake is strong too as Book to Bill is 103% YTD.
- Consulting and Professional Services suffered a 12% decline “based on lower volumes and pricing agreed in the first half”. In other words, new projects are hard hit and companies are demanding ‘More for Less’ squeezing rates.
- UK put on the strongest performance – up 7%
- The Nordics (Logica’s biggest geography) was down 2%, France down 5% but Benelux down a whopping 23% .

It was particularly interesting that Logica is taking another stab at cost cutting; putting aside a further £20m provision for 2009 (total now £145m) resulting a total headcount reduction of 2200 since the start of 2008. Perhaps the clue is that Logica’s attrition rate is ‘only’ 7% compared with a 12% decline in its main ‘people-based’ activities.

Even more interesting was Logica’s ‘slowed addition of headcount in offshore and nearshore centres reflecting weaker market demand”. At 5275 – 13% of the total workforce – Logica does not expect this to change anytime soon. I’m sure my colleague Anthony Miller (who is on a well earned holiday at the moment) would have had much to say about this. But I have to say that I have heard this kind of comment from quite a few others recently. The cost gap between offshore and onshore has narrowed because of the economic downturn. Clearly that same climate means more availability of skilled onshore staff.

I see nothing in the Logica IMS to indicate any change in the SITS climate or outlook. (Readers will know that since Q3 2007 we have said we do not see an up-tick in SITS spending until H2 2010) Everything ‘new’ (people, projects, software) is still in the doldrums. Outsourcing and everything connected with ‘More for Less’ and cost saving is ‘the place to be’. In that respect, Logica is a microcosm of the market as a whole. Where Logica can be given credit is their UK performance. Here Logica makes 63% of its revenues from the Public Sector – about twice the UK SITS market share. Public Sector revenues were up 13%. This high reliance on Public sector could be risky with a change of Government. UK private sector revenues did nothing more than “stabilise”.

Logica shares have opened up 5% at 120p.

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