Logica accelerates restructuring to position the business for a tougher economic climate
The Logica Board is today announcing a number of actions to reshape Logica for success in challenging times
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.
Restructuring will occur primarily in the following areas:
- Action will be taken 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 acceleration of automation and offshoring in our infrastructure management business will ensure we can continue to deliver efficiency improvements to benefit our clients and ourselves. Around 450 job losses are expected, split primarily between Sweden and the UK.
- The realignment of our business in Sweden will also result in a further reduction of 200 billable jobs as well as property exits.
As a result:
- Our Benelux business will return to profit in 2012.
- Our Swedish business will deliver an improved margin in 2012.
- Our IM business will be strongly competitive going forward.
We are confident that taking tough decisions today will deliver the stability that our clients, the rest of our people and our shareholders need in difficult times and will build a more sustainable business for the future.
Our balance sheet remains strong. Net debt/EBITDA is expected to be around 1.0x at the end of 2011. Even after the cash impact of restructuring of between £60 and £70 million next year, net debt/EBITDA at the end of 2012 will be around 1.0x.
The Board is therefore confirming with today's announcement that it intends to pay an unchanged final dividend for 2011 of 2.3p. This brings full year dividend to 4.4p, which represents a 5% increase on 2010. We intend to maintain our dividend policy of a 40% payout in 2012.
Full year results will be announced on 22 February 2012.
Logica will host a conference call for investors and analysts today at 8:00am UK time. Investors and analysts can access the call at: +44 1296 480 100, participant PIN: 743 368, or join the webcast at URL: https://www.livemeeting.com/cc/logica with the following web conference meeting ID: K4157169 and attendee meeting key: 743368.
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."
Logica is a business and technology service company, employing 41,000 people. It provides business consulting, systems integration and outsourcing to clients around the world, including many of Europe's largest businesses. Logica creates value for clients by successfully integrating people, business and technology. It is committed to long term collaboration, applying insight to create innovative answers to clients' business needs.
Logica is listed on both the London Stock Exchange and Euronext (Amsterdam) (LSE: LOG; Euronext: LOG). More information is available at www.logica.com.