Logica shares dive on third profit warning in six months

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Logica shares plunged 17 per cent yesterday after the IT services company issued its third profit warning in six months, sparking anger in the City and dealing management credibility a serious blow.

The company, which also announced plans to cut 700 jobs, once again blamed the bulk of the alert on a weak performance at its text messaging software business.

Shares in the company crashed 51p, to close at 243p, making the stock the biggest faller in the FTSE 100 index. Those of its rival CMG finished down 9 per cent at 148p.

Logica said revenue at its mobile networks division in the second half of its year would now be "substantially" below the £161.7m it earned in the first half as telecoms customers delayed spending on new IT projects.

Analysts, who six months ago were predicting the division would grow by about 40 per cent to 50 per cent this year, yesterday estimated sales would drop by about 15 per cent.

Logica said it expected revenues for the group as a whole to be flat on last year's figure of about £1bn but warned that earnings would be "significantly" below last year's.

"The thing that has really given us the problem is the amount of time it is taking to close deals [in messaging]. A typical timeframe would have been 60 to 90 days and it's now anything up to six months," said Andrew Given, the deputy chief executive.

Mr Given, who believed the telecoms contracts had been delayed and not lost, said the company was still in talks on one particular contract in the US, worth some £20m, which it had previously hoped to sign off in the early part of this year.

But investors and analysts, who slashed their profit forecasts for Logica for both the current year and next year, had little sympathy with the company, saying they felt they had been "misled" by its management. "It's a disgrace really and they [Logica's management] have just misled investors. We need a clearer explanation of what is going on," one fund manager said.

Until recently, Logica had indicated that it was still expecting the messaging division to grow by about 10 per cent to 15 per cent this year.

"They are suffering at the hands of the market but where they've really screwed up, and this is something Martin Read [Logica's chief executive] is utterly responsible for, is the appalling communications with the City," one analyst said.

Logica said yesterday it had strengthened the messaging division's management to "drive through the actions needed to succeed in the current very difficult climate". Chris McDermott, who was responsible for Logica's operations in the Asia Pacific region, will now head up the division.

The company, which said it did not expect any "material" recovery in demand in the messaging business in the first half of next year, said it was cutting 400 positions from the unit's 1,450-strong workforce.

Another 300 jobs are going from its IT services division, which employs about 10,000. Logica predicted its services revenues in the second half would be "just ahead" of the first half, giving single-digit growth for the full year.

The cost-cutting measures, Logica said, would cost it about £34m in the second half of this year, and would deliver annualised savings of about £40m a year.

The investment bank Merrill Lynch cut its profit forecast for the company for the current year by 26 per cent to £111.7m and its estimate for the following year by 38 per cent to £80m.

Logica said: "The action we are taking will protect the long-term profitability of the business and maintain a platform for growth when the industry climate improves."