Logica returns to growth in the third quarter
-Third quarter revenue up slightly on last year at £863 million
-Continuing to outperform the market in outsourcing, with revenue growth of 7% in the third quarter and revenue up 8% year to date
-Consulting and Professional Services decline slowed from 7% in the first half to 4% in the third quarter
-Group book to bill on a year to date basis broadly in line with last year at 106% (2009: 107%), with Outsourcing orders up 13% year to date
-Full year guidance maintained with revenue and margin expected to be at a similar level to 2009
-Year end net debt/EBITDA expected to be comfortably below 1.0x
Commenting on today’s announcement, Andy Green, CEO said:
"Logica returned to growth in the third quarter, reflecting strengthened financial services demand across all our markets. While European recovery remains uneven, we continue to expect modest second half revenue growth and adjusted operating margin for 2010 as a whole at a similar level to last year. Our good order backlog in Outsourcing, combined with improving trends in Consulting and Professional Services, positions us well for 2011."
1 All headline numbers relate to pro forma numbers as defined in Note 2 on page 5 of the attached PDF document.
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The balance of our business continues to underpin our expectation of full year revenue and adjusted operating margin at a similar level to 2009 on a pro forma constant currency basis. Our 2009 pro forma revenue was £3,659 million (2009 reported: £3,702 million), based on current exchange rates.
We employed 39,036 people at the end of September, compared to 39,074 at the end of June 2010. Attrition for the group was up significantly on the same time last year at 13% (2009: 7%) and utilisation is also high in most markets. With attrition continuing to rise through the quarter in all our major markets, we are now recruiting across the Group, while continuing to focus particular attention on strengthening our capacity in our offshore and nearshore centres. We ended the quarter with around 5,750 people in these locations.
Group orders and book to bill
New orders totalled £758 million (2009: £829 million), with fewer large deals closing in the summer months this year and with the short term effect of slower decision making in the UK public sector. On a year to date basis, our book to bill was 106% (2009: 107%).
Outsourcing orders are up 8% for the quarter and up 13% on a year to date basis. In addition to the previously disclosed 4-year contract win with Ofcom in the UK, other wins included a 4-year contract with the French Ministry of Finance for modernisation of its applications environment and contracts in Finland with Luottokunta and Stora Enso. Outsourcing book to bill is 108% on a year to date basis (2009: 103%) and based on our high visibility, we expect good growth in Outsourcing Services through the remainder of the year. Our strong order intake and weighted pipeline through 2010 gives us confidence of continued strong Outsourcing growth into 2011.
Consulting and Professional Services book to bill remains healthy at 105% on a year to date basis (2009: 109%), with recovery in the financial services sector remaining the strongest driver of demand.
Revenue by service line
Outsourcing revenue was up 8% year to date to £1,159 million and continued to show good growth in the third quarter with revenue up 7% to £373 million (2009: £350 million).
The rate of decline in our Consulting and Professional Services continued to slow. Revenue was down 4% in the third quarter, compared to a decline of 7% in the first half. Revenue on a year to date basis now stands at £1,557 million.
France continued to be our strongest performing market on revenue growth. Revenue was up 7% in the third quarter to £188 million, with year to date growth also at 7%. This was based on a continuing strong performance across the public and commercial sectors.
Despite Outsourcing orders being down against an exceptionally strong quarter last year, the business overall delivered a solid Q3 book to bill at 106% (2009: 167%). On a year to date basis, book to bill is 113% (137%).
Northern and Central Europe
Revenue in the region was up 7% to £182 million in the third quarter, with good growth across all sectors and countries. On a year to date basis, revenue is up 5%.
Orders are up 9% on a year to date basis. Some of our biggest group orders in the quarter were in Finland, with a 4-year IT outsourcing contract with Luottokunta, the leading card payments service provider, and a 3-year IT outsourcing contract for global paper, packaging and wood products company Stora Enso, covering all their production facilities in Finland. On a year to date basis, book to bill is 113% (2009: 109%).
Revenue was £172 million in the third quarter, down 11% against a strong comparative in 2009. On a year to date basis, revenue is down 6% to £539 million with Public Sector revenue down 5%. Our expectation is that UK revenue will grow in the fourth quarter and that full year revenue to be in the range of £720 to 730 million.
Book to bill was 79% on a year to date basis (2009: 83%), with full year book to bill expected to be above 100%. Slower decision making in the lead up to the signing of our Memorandum of Understanding with the UK Cabinet Office was the main contributor to a lower third quarter order intake in the Public Sector. Since the end of the third quarter, we have seen signs of increased activity as government departments turn their attention to the longer term transformation of public service delivery. In the defence area, we have been selected as the preferred bidder for the upgrade of the UK’s Defence Electronic Warfare Database as well as a suite of Electronic Warfare operational support tools.
Outside the Public Sector, we are now supporting over 100,000 residential smart meters, having been entrusted by 4 of the ‘Big Six’ energy suppliers to support their smart metering initiatives.
The third quarter marked a second consecutive quarter of revenue growth in Sweden. Revenue of £125 million in the third quarter was up 5% compared to last year. Revenue is now up 2% on a year to date basis. While Public Sector volumes remained lower as we had expected, all other sectors were growing.
The strong Outsourcing orders recorded through the first half have led to a strong order backlog. On a year to date basis, book to bill in Sweden is 132% (2009: 121%), with third quarter book to bill at 77% (2009: 72%).
As we expected, the level of revenue decline slowed in the third quarter and we continued to see improvements in utilisation. Third quarter revenue was down 7% on last year, compared to a decline of 15% in the first half. On a year to date basis, revenue is down 12%.
Book to bill for the third quarter was 93% (2009: 85%), with orders in the third quarter stable on last year. We now expect slower decision making in the Public Sector to continue through the end of 2010. However, this is being partly offset by improving demand in the financial services sector. In the third quarter, we signed a new 5-year framework agreement for application development, testing and application maintenance and support for ABN AMRO. On a year to date basis, book to bill is stronger than last year at 103% (2009: 87%).
Revenue was up 4% in the third quarter to £86 million, with good utilisation and less third quarter seasonality than in our other businesses. On a year to date basis, revenue is up 2%, with the North American business being one of the stronger contributors to growth.
Book to bill was 87% in the third quarter (2009: 98%) and was 94% on a year to date basis (2009: 100%).
We have made good progress on cash collection and expect to deliver strong second half cash conversion. Despite the stronger euro since the first half, we still expect net debt/EBITDA to be comfortably below 1.0x at the end of 2010.
The next scheduled statements are:
23 February 2011 FY 2010 preliminary results
4 May 2011 AGM and Q1 2011 interim management statement
5 August 2011 H1 2011 interim results