Tuesday, 22 April 2008

Logica Business Review

Andy Green announced the results of his Business Review of Logica this morning. You can read the full Logica Press Release.

I will report my views on the Business Review tomorrow once I have had time to digest them and hear what Andy says at the analyst briefing this morning. However, the two analyst reports I have read to date (ie at 8.30am) both conclude that the plan is not radical enough and should have gone much further. So far Logica shares are downn 2% 112p (8.30am)

The following are highlights of the plan 'cut and pasted' from the Logica announcement:

- Focus for growth: increased investment to enhance sales and marketing operations, consulting capability, and to focus on creating innovative propositions in selected high growth areas for European customers

- Accelerate blended delivery: driving the model that blends offshore and local resources, to more than double offshore and nearshore headcount to 8,000 by the end of 2009

- One Logica: a programme to put in place the right organisation, processes and incentives to ensure a deeper integration of the group

- Competitive costs: a significant reduction in costs resulting from streamlining the organisation, rationalising property and a reduction of approximately 3% of overall headcount (primarily driven by a 15% reduction in non-billable headcount) Logica will make around 1,300 redundancies. The majority is expected to be related to a reduction of around 15% of Logica’s non-billable staff. In the UK, it is anticipated that this programme could impact approximately 500 employees; this will include the impact of reductions in UK-based corporate functions
In mainland Europe, where growth has been strong, around 2% of the employees are expected to be affected.

The plan is designed to deliver above-market growth, funded by a £110 million restructuring programme that will deliver increasing cost savings reaching an annualised amount of approximately £80 million from 2010

In addition to confirming 2008 guidance, new targets have been set for revenue growth and margin improvement in 2009 and 2010

- 2008 revenue growth of around 3% at constant currency

- Revenue growth above the market from the end of 2008, with outsourcing revenue the fastest growing area

- 2008 adjusted operating margin (“margin”) similar to the underlying 7.6% achieved in 2007

- c.0.5% increase in margin in 2009, with a further 0.5% to 1.0% increase in 2010.

- Over the medium term, Logica expects the plan to deliver sustainable double-digit margins.

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