Logica forced to slash its forecasts

  • @MrNickClark

Logica slashed its growth forecasts for 2011 as demand slowed in the third quarter and its ongoing woes in the Benelux region continue to drag on performance.

The IT services group posted revenues of £914m in the three months to the end of September, missing the City's expectations by 2 per cent.

Andy Green, the chief executive of Logica, complained of "pockets of softness" that emerged in September. The news sent its shares tumbling by over 8 per cent.

Orders had risen 13 per cent in the first half of the year, but were broadly flat in the third quarter. Sales growth is expected to fall from 5 per cent in the first six months to 3 per cent for the full year. Paul Morland, an analyst at Peel Hunt, said the slowdown was "worse than expected". The group had expected margin improvement of 7.4 per cent but lowered the forecast at the end of the first half. It said yesterday it now expected the range to be between 6.5 and 7 per cent.

Much of the company's problems continue to come from the public sector in Belgium, the Netherlands and Luxembourg and from Swedish outsourcing costs, which forced the company to lower margin forecasts by 5 per cent in the first half.

"Both of these issues appear to be taking longer to resolve than hoped," Mr Morland said. "The weakening order book does not bode well for 2012." Revenues in the Benelux region fell 3 per cent in the first three months of the year.

Will Wallis, an analyst at Numis Securities, said that while the shares were close to historic lows there were still downside risks to revenue estimates and "ongoing long-term strategic challenges".

The UK, where revenues fell 2 per cent in the second quarter, became the company's "fastest growing geography" in the third quarter as the public sector revenues continued to stabilise and growth in commercial sector contracts improved.