Tuesday, 22 January 2008

Logica and Andy Green

I've known and respected George O'Connor - now at Panmure Gordon - for many years. Yesterday George met with Andy Green, the new CEO at Logica, for the first time.

This is the Panmure Gordon morning note that George wrote after the meeting - with the "Buy/Sell and forecast" bits omitted for obvious reasons!

George O’Connor from Panmure Gordon meets Andy Green, Logica's new CEO - 21st Jan 08

With the exception of not mentioning the phrase “shareholder value”, Mr Andy Green’s first experience should be seen as positive. In our view forthcoming actions should include a restructuring which in turn creates forecast uncertainty.

Key messages.
Mr Green sees his role as being to concentrate on;
1) improving LogicaCMG selling capabilities,
2) improving integration across this country-based company by creating horizontal capabilities, and
3) building up the offshore capabilities.
Positively, our impression is that Mr Green has engaged with many LogicaCMG customers and staff over the past three weeks. He cites ‘customer intimacy' as a key advantage of LogicaCMG.

Creating a ‘modern’ IT services company.
We are very encouraged that Mr Green appears to share our view that LogicaCMG’s country operations are not joined up on vertical lines. This, in our view, reflects the nature of the acquired businesses rather than any country specific characteristics, and highlights a lack of integration. In addition, we see his support for our structural view that Asian offshoring is simply too small – the current footprint is 3,000 in India with a further 150 in the Philippines, additional resources in Morocco and Eastern Europe, and of course the near shore resources in Wales. At forthcoming results Mr Green is likely to sketch out his near term plan – to better understand LogicaCMG with a restructuring plan outlined by March/April. This should involve cash exceptionals.

Investment case net/net.
Investors should be broadly encouraged - Mr Green is making the correct noises, greater devolved decision making marks a welcome break with the past and so, in our view, employees should welcome this appointment. We still see a restructuring as inevitable as the short term increases the cost base as LogicaCMG builds its capabilities especially in large bid teams, offshore customer delivery and process management. For us this suggests increased costs.

George O’Connor
Software & IT Services analyst
Panmure Gordon & Co
E-mail: george.oconnor@panmure.com

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