Outsourcing boost Logica’s sales

Logica kept its full-year forecast for roughly stable sales and operating margin but said it had agreed some reductions in the scope and value of government contracts in its UK home market. Its shares fell more than two percent.

Revenue grew one percent in the July-September quarter to £863m and orders rose eight percent to £758m. Logica said it expected a strong fourth quarter as UK government activity resumed and Benelux business improved.

“We are cautiously optimistic about our prospects for growth next year,” Chief Financial Officer Seamus Keating told journalists on a conference call.

UBS analysts said the sales figure had beaten consensus but noted weak book-to-bill ratios of 0.81 in Logica’s outsourcing business and 0.95 in projects and consulting, partly due to normal seasonality.

“The market may nonetheless be a little disappointed at this and the lack of meaningful acceleration on the topline,” they wrote in a note.

Logica said it expected revenue in its UK home market to grow in the fourth quarter, despite public sector cuts, and that it had seen signs of increased activity from government departments since the end of the third quarter.

The company has signed a memorandum of understanding with the UK government to continue all its existing contracts – which span 55 government agencies. British public sector business accounts for about 10 percent of Logica’s total sales.

But Keating said Logica was working with the government to scale down some contracts in light of an urgent need to save public money.

Several other IT service providers including Siemens, Atos Origin, Accenture and Capgemini have announced similar agreements to continue contracts with the UK government.