London: Logica is to cut over 1000 jobs and restructure some of its operations in the face of soft European demand, its Board told investors in a profits warning yesterday.
The move came a day after Logica announced that it had secured a ground-breaking public sector framework agreement in the UK.
In a statement to shareholders the firm said, "Our orders performance on long term contracts remains strong. However it has recently become clear that many of our clients are delaying short term expenditure and reducing discretionary investments to weather an uncertain economic future. As a result, the pockets of weakness that we first saw in September have widened through the quarter. We now expect full year revenue growth to be around 3%, and underlying profitability in the range of £240m to £250 million (net of £25 million of previously announced restructuring charges).
"Client conversations lead us to expect this trend to continue and recent market forecasts now predict GDP declines of 1% to 2% in our European markets in 2012. We are therefore accelerating the restructuring that we would otherwise have spread over the next two years. This will lead to charges in the current financial year of around £80 million related to restructuring of jobs and £13 million relating to property. We expect these measures to impact in excess of 1,300 jobs. Financial benefit of £25 to £35 million is expected to flow through from the second half of 2012, with full year operating margin expected to be above 6.5% in 2012 even in the difficult market we anticipate. The full annualised benefit in 2013 will be in the region of £50 to £60 million.
"We have undertaken a thorough review of our contract portfolio. In particular, we have taken a more prudent view of a small number of long term contracts to reflect the more difficult economic outlook. We will accordingly take a one off charge of £39 million which will be incurred in 2011. Most of the charge reflects a change in provision for expected lifetime contract losses as a result of the likelihood of lower expected revenue on a small number of volume-dependent contracts with between four to six years still to run. The remainder of the charge arises from applying increased rigour to the achievability of cost transformation across the portfolio; this has been exacerbated by the economic outlook."
The firm's restructuring will comprise:
- Action in the Netherlands and Belgium to reshape the workforce to match the demand conditions and the changing shape of the business. "Over 2012, we expect tight controls on recruitment and ongoing attrition as well as streamlining of our operating model to lead to between 450 and 550 people leaving the business. We also expect a significant reduction in overhead costs, which will include exiting more than half of the property we currently occupy as we move to more agile ways of working", the Board said.
- The acceleration of automation and offshoring in infrastructure management business will ensure it can continue to deliver efficiency improvements. Around 450 job losses are expected, split primarily between Sweden and the UK.
- The realignment of the business in Sweden will also result in a further reduction of 200 billable jobs as well as property exits.
Logica says that, as a result:
- Benelux business will return to profit in 2012.
- Swedish business will deliver an improved margin in 2012.
- IM business will be strongly competitive going forward.
Andy Green, CEO, said: "We deeply regret the impact job losses will have on the people affected in many of our businesses. But we are confident that it is best for our clients, people and shareholders that we face squarely into the difficult economic conditions ahead. This decisive action will result in sustainable margin improvement in 2012, with the benefits starting to flow through in the second half. It will also ensure that a strong Logica can concentrate on helping clients to use technology to cut costs and serve their customers better."