Logica says to cut 1,300 jobs
SOURCE: Herald Tribune
DATE: April 22nd, 2008
Mohit Soapbox:
Logica is going thru a painful growth phase and figuring out their strategy to compete with larger players and pure play offshore players. Logica is going to expand it’s presence in low cost countries but reduce head count in UK.
IT services firm Logica said it would make around 1,300 jobs redundant as part of a 110 million pound restructuring programme which would enable it to beat market growth in 2009.
“I am confident that this plan will allow us to outperform the market and revitalise Logica, delivering sustained value for shareholders, customers and employees,” new Chief Executive Andy Green said on Tuesday, announcing the outcome of a strategic review.
The restructuring programme would deliver cost savings of around 80 million pounds per year from 2010 and boost margins, he said.
Around 500 of the job cuts are expected to be in the UK as the firm focuses on more outsourcing overseas. Logica’s overall headcount is currently 39,000, but as well as the 1,300 job losses the firm will look to add around 4,000 jobs in India, the Philippines and Morocco.
Logica’s shares, which are up over 20 percent from a month ago, were down 5 percent at 108.75 pence at 9:47 a.m., valuing the company at around 1.6 billion pounds.
George O’Connor, an analyst at Panmure Gordon, said the shares had risen ahead of the announcement and that he did not think Green had done enough.
“He’s trying to make an existing structure better, rather than addressing a fundamental shift in the market,” he said, adding that the indicated number of jobs outside Europe — about a quarter of the workforce — was too low.
Landsbanki analyst Michael Donnelly was more upbeat.
“We are pleased with the focus on offshoring and outsourcing, and believe that the magnitude of the proposed savings points more to significant previous mismanagement of the cost base than over-optimism,” he said in a note.
Logica said it expected a 0.5 percent increase in margin in 2009 to around 8.1 percent, with a further 0.5 to 1 percent increase the following year. The 2008 margin is expected to be flat at around 7.6 percent, with double digits the medium term target.
Green told reporters that the firm would meet an earlier forecast of 3 percent revenue growth in 2008, below the rest of the market, but he hoped next year would be much higher.
“2008 is a year of consolidation — this takes time. We are a couple of points below the market this year, we will be a couple of points above next year,” he said, adding that he expected the market to grow at 4-6 percent in 2009.
The dividend policy will remain unchanged.
Green was appointed in the autumn after the departure of long-serving CEO Martin Read, who resigned following a profit warning last May.
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