Corporate Profile: The Logica solution
When this article was written, Logica was worth pounds 5.4bn. When it went to press, the company was worth pounds 6.1bn. Who knows what its value will be by the time you read it? The chief executive, Martin Read, believes he has the software to write the company into the corporate history books
Wednesday 15 December 1999
Market capitalisation: pounds 6.1bn
Turnover: pounds 660m for year to 30 June 1999
Pre-tax profit: pounds 63.4m
Main businesses: Logica is a computer consultancy providing software and systems solutions to industries including telecoms, finance, and utilities. Customers include governments and firms such as Ford, Merrill Lynch, Exxon, IBM, Prudential and Vodafone
Key executives: Dr Martin Read, managing director and chief executive: Andrew Given, finance director; Mario Anid, acquisitions and global expansion; Larry Quinn, mobile networks, customer care and billing; Jim McKenna, personnel and Asia Pacific region
Number of Employees: 8,500
Dr Martin Read has the sort of CV that makes corporate headhunters drool. As chief executive of Logica for the past six years, he has spearheaded an astonishing corporate expansion. When he took over the helm of the computer consultancy and software systems firm in 1993 the stock market value of the business was a meagre pounds 130m. Today, Logica is among the top 100 British companies, with a market value of pounds 6.1bn after five years of uninterrupted annual 35 per cent growth in earnings.
Logica shareholders must be fearful Mr Read, 49, might be awfully tempted to move on to something even more glamourous, (and perhaps even more lucrative than his package last year of pounds 12,000 a week). They are keeping their fingers crossed that he will decide to stay put to complete his vision of the next five years. "In that time I would like to make Logica as famous a brand as IBM," says Mr Read.
In the Klondyke atmosphere currently pervading the stock market, that goal seems attainable. The chief executive has established himself as a global player in the burgeoning market for information technology. Half the mobile phone messages across the globe, and half the world's currency transactions, involve the use of computer software and systems developed by Logica. The company provides large bespoke software and systems solutions across industries from telecoms to finance, and has a roll call of top- name clients including Ford, Merrill Lynch, Deutsche Bank, Compaq, Diageo and Reuters.
Mr Read says: "This is a very successful company operating in very exciting market areas. Last year, the combination of rapid organic growth and acquisitions significantly changed the overall shape of our business. We think we are very strongly placed to take advantage of the rising global demand for our proven IT solutions. We have established a world leadership in mobile phones - our products are used by 150 mobile phone operating companies."
He is not surprised by the stock market's torrid and passionate love for all things technological. Getting FTSE 100 status was one of the seemingly impossible targets he set the management very early in his reign.
This year, as Logica shares have trebled in value, that ambition has been comfortably achieved. "People have been asking me about the share price performance for the past three years," he says. "They were wondering how it can be sustained. But IT is simply taking up a greater proportion of world economic activity. It pervades all organisations, not just business. IT is like the steel industry in the Victorian age. Railways, ships and big buildings all needed steel. IT is now a vital component in virtually every company's strategy."
Logica was founded in London in 1969 by three colleagues at a computer sciences company. Within four years it had sales of more than pounds 1m a year, including a contract to help to develop an international funds transfer network for 200 banks in 13 countries. In 1983, the company floated on the market, and for the rest of the decade it snapped up software systems contracts for everything from Ford's communications to speech technology research.
But by the early Nineties, Logica's original founders began taking a back seat and the company started to lose momentum. It developed a reputation for never firing on all cylinders. Andrew Given, Logica's finance director, remembers vividly how Mr Read grabbed the helm in 1993. "As executive directors we knew we were being brave in choosing him, because for most of us it was like turkeys voting for Christmas."
Mr Read, then in his early forties, had been an Arnold Weinstock acolyte at GEC, running a sizeable chunk of its Marconi business. It was obvious his appointment would involve a hard-nosed management shake-out. In the event, Mr Given was the sole survivor of the old regime. Mr Read brought in Jim McKenna, an ex-GEC man, and recruited from the frustrated ranks of Logica's middle managers. "Intellectually, Logica directors knew what needed to be done to put the business right," Mr Given says. "What it completely lacked was the ability to overcome the huge inertia pervading the company."
It had become what he calls "a very academic organisation", with a reputation for arrogance. They were known as the company people came to when they had a really intractable problem. "Our preference in those days was to solve one intractable problem, then move on to the next intractable problem ," says Mr Given. "If it required the same solution as had been tried before, that seemed boring. So why not try something new and more challenging?"
It was a culture not focused on delivering value either to customers or shareholders. Mr Read's scientific background - a degree in natural sciences at Cambridge and a doctorate in physics at Oxford - meant Mr Given and his colleagues were "confident he would understand the business and at the same time he was someone with the drive and ferocity of will to get over that mountain of inertia".
Mr Read says there are no secrets to his success. "One of the things that really surprised me when I came here was the huge amount of talent within the company, " he says. "All I had to do was harness it." The company still focuses on the difficult tasks and custom-built solutions, what Mr Read calls "high-value-added mission-critical systems in growth areas such as telecoms, finance and utilities". But the pattern he established was "to repeat what we do time and time again and to do it on a global scale".
Some might say Logica has merely been swept along in the general stock market euphoria with all the other new "techie" FTSE 100 entrants such as Misys, Sema, Sage, Colt and Energis. But the strategy has left the company serving a wide range of industrial sectors and an increasingly global reach after a series of carefully judged but relatively modest acquisitions. City analysts are convinced this will continue to deliver spectacular growth.
"We would like to be bigger in Germany and the US," says Mr Read. "But most of the growth will come organically." Mr Given says: "No major merger with another company is needed to fulfil our potential. We are not going to be seduced by the share price into making acquisitions. We remain awfully cautious on that front - we look at a lot and kick out a lot."
Last year saw profits rise 52 per cent to pounds 63.4m and for the first time Mr Read came within a whisker of achieving another one of his long-standing targets - a profit margin of 10 per cent-plus. Alistair King, a City analyst for Charles Stanley, expects profits to almost treble over the next three years.
Mr Given says: "About one-third of our business is now in telecoms and 90 per cent of that is in the mobile arena. The mobile business is a huge opportunity. We thought at first that penetration in developed countries would reach 25 per cent to 30 per cent and flatten out. Now that seems to be the threshold, not the ceiling."
In less developed countries, he sees people going straight to mobile phones because it is much more cost-effective. "Take a village in India - if they have no phone, someone has to get the bullock cart out and flog off to the nearest town to do something. Mobile phones offer breathtaking returns in the developing world."
Logica provides services to the mobile industry across the spectrum. "We can tell you how to run auctions for new licences, how to apply for new licences, how to plan the network, design a billing system, design a pre-pay system, provide messaging systems and provide systems that enable different networks to talk together," Mr Given says. "I don't think there is any other company in the world that can provide such a broad capability in the telecoms arena."
Another big driver of growth has been the whole process of privatisation and de-regulation of utilities. Here Logica has a distinct advantage of being a British company, where the whole trend began. "Today any consumer in Britain can pick up the phone and switch their purchase of electricity from one supplier to another with a few words," says Mr Given. "All that is made possible by computer systems - and I would say there is a 100 per cent chance it is a Logica system which enables that to happen."
Logica got into that particular game for the first time in a very small way by creating a trading pool for an electricity company in New Zealand. One of the keys to the company's growth has been that the customers it serves tend to be global businesses with similar problems wherever they are. So a solution in one company or one industry can often be repeated in solving a problem elsewhere.
Deregulation provides the classic case. "The process really started in the early Eighties with the privatisation of BT," says Mr Given. "And here we are 15 years later and it is still going on in the UK. Others have seen the benefits and the whole process is rolling around the world. Logica has done more business in UK electricity deregulation than anyone else and so we are tremendously well-placed to take our expertise around the world."
In Dr Read's Oxbridge student days, he applied his energy and youthful charm to amateur dramatics. Invariably, he was cast as the villain - including, on one occasion, Othello's evil sidekick, Iago. Shakespeare was adept at making some of his other villains look like heroes. At Logica, Mr Read has turned what must have seemed (to his new colleagues at least) an almost villainous start, into a heroic performance.
software programmed for stunning growth
1969: Logica is founded in London by Philip Hughes, Len Taylor and Pat Coen
1970: Wins first major contract, worth pounds 100,000, for a computerised national hotel reservation system. Some 10 per cent of first-year turnover generated outside UK
1973: Turnover tops pounds 1m. Dutch office opened. Logica helps develop international funds transfer network for 200 banks in 13 countries
1975: Designs UNICOM - the world's first office word processing system. Study for Australian Post Office on future trends in data communication
1977: Completes a European Space Agency study of the satellites market. Logica Sweden and Logica US launched
1979: Helps implement CEEFAX, the pioneering TV system. Turnover exceeds pounds 10m
1981: Wins major contract for Dutch gas pipeline network
1983: Logica floated on the London Stock Exchange. Staff, now more than 1,000, own 40 per cent of company. Market values business at pounds 80m
1984: Logica begins working for Ford Motor on international communications. Logica Germany launched
1985: Logica Italy launched. New gas management system developed for British Gas. Staff now 2,000
1986: European Space Agency Giotto satellite encounters Halley's comet with aid of Logica software
1987: Turnover exceeds pounds 100m, staff now more than 3,000. Wins Europe's biggest research contract in speech technology
1988: Logica Malaysia launched
1989: Advanced Image Processor Terminal developed for MoD
1990: Founders Philip Hughes and Len Taylor give up day-to-day control
1992: Turnover reaches pounds 180m. Logica starts work on advanced water network management systems in Australia
1993: Dr Martin Read appointed chief executive. Market value of business at the time pounds 130m
1994: Logica acquires Synercom USA. Develops software infrastructure for US telecoms group Ameritech to deliver interactive multimedia services
1995: Develops realtime travel information services for the Scandinavian market. Delivers a new numbering system for Dutch national telephone network. Helps centralise Ford purchasing systems. Logica offices launched in Eastern Europe and Middle East. Market cap of the business reaches pounds 230m
1996: Market value of the company nearly doubles during the year to more than pounds 400m. Makes a major expansion in France by acquisition of Axime Ingenierie with 4,000 staff
1997: Market value jumps to pounds 1.4bn. Staff numbers go up to 5,000 and turnover reaches pounds 335m. Office launched in India. Aldison (Eire) acquired. By the end of the year, half of staff and half sales are located outside the UK. A new funds transfer system is developed for Saudis
1998: Logica makes a string of overseas acquisitions in France, Belgium, Holland, the Czech Republic and the US. Year-end value of the company is pounds 2.17bn
1999: Logica wins contracts for Japanese mobile market. Acquires Team 121 software company for pounds 74.5m. Completes the programme of an international messaging infrastructure for SmithKline Beecham
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