Thursday, 14 August 2008

Logica shares up on positive interim results

Logica has just issued its interim results for the six months to 30th June 08 which are ahead of expectations. At the headline level, revenues were up 6% at £1525m with Op Profit up 16% at £118m and Adj. EPS up 35% at 4.0p. However, Logica says it “has seen incidences of slower spending in financial services and with some consumer-driven customers, our markets have generally remained positive in the first half”. Despite that, Logica has increased its guidance for 2008 to “revenue growth closer to 4%, compared to previous guidance of around 3%”.

Logica shares are up 9% at 122p (9.00am) on this news.

Growth returned in the UK – revenues were up 6% at £354m. Indeed UK Public Sector revenues grew 7% and now account for 57% of UK revenues. Operating profitability in the UK improved hugely from £4m to £22m; producing an operating margin of 6.3% - pretty much in line with Logica's overall operating margin of 6.7%. Energy and Utilities did well with a 16% growth but "Financial Services and IDT continue to be challenging” declining by 6% and 4% respectively.

At long last Offshore headcount is on the rise, with a net 450 added since the year end (now 3,900, about 10% of group headcount) Most of which additions were in India.

I’ll comment further when I’ve had time to absorb the full 53 pages of the release. But early impressions are positive. That doesn’t alter my views at the time of the Business Review. I still think that Logica is trying to fire on too many cylinders. It’s too ‘mid-sized generalist’. What Andy Green is doing is being the old Logica but trying to execute better. These results would indicate that he’s made some early progress. Whether it is enough is another matter.

Footnote – I heard Andy Green on the Today programme this morning when he forecast that IT Services growth would be equal to or ahead of GDP growth. As readers know, I do not buy that. I expect SITS growth in the UK to be at, or very marginally below, GDP growth for 2008 as a whole and about 4% off GDP growth in 2009. But I do think that Andy might be falling into the same mistake as many other observers. GDP is a real growth figure – ie it’s after inflation. Therefore you MUST adjust SITS growth accordingly. In other words, if inflation is 4%, then you have to knock that off headline growth to get back to a real growth figure. So, if inflation is 4% in 2009 and GDP is 1.75% (the two current projections) then headline growth has to be 5.75% just to equal GDP growth. I don’t think it will be. I think UK SITS headline growth in 2009 will be around 2% - ie a c2% decline in real terms. But, of course, if we go into recession – ie negative GDP growth - then Andy’s statements might indeed prove to be correct!!

No comments: