Logica to make 1,300 redundant as part of £110m restructuring plan

Logica is to lay off 500 staff in the UK and another 800 worldwide, newly appointed chief executive Andy Green confirmed, as the IT group attempts to reverse its ailing fortunes.

The redundancies, revealed in The Independent last month, are part of a £110m restructuring plan designed to deliver market-beating revenue growth by 2009 and improve the outlook for a technology group foundering through lack of management focus and poor links between its domestic European businesses.

"We will hollow out the company, reducing the back office cost and investing in the front office to grow a successful and revitalised Logica," Mr Green said.

The central tenet of the strategy is a "blended delivery model" – which means making better use of highly skilled, low-cost resources in offshore locations such as India and the Philippines, and joining up the divisions at home. Alongside redundancies stripping 15 per cent out of the company's administrative head-count, Logica is to double its offshore staff to 8,000 by 2009 and is already hiring at a rate of 300 per month in India.

"The model is about using local resources and then laying off to either near shore or far shore – giving clients access to skills and cost base offshore without leaving them with the complexity of dealing with culture, time, distance, and language," Mr Green said.

Some £70m of the cost of the plan will fall on this year's balance sheet, the rest next year.

Logica's team of consultants is to go up by 1,000 to 3,500 worldwide by 2010. The company will also be hiring 100 extra sales staff, 25 of which will be in the UK, and re-nosing incentive structures for both sales teams and senior management. And it will be focusing on specific high-growth areas, including green technology, intelligent transport and smart electricity metering.

If all goes according to plan, Logica will see annualised savings of £80m from 2010, according to Mr Green. And although both revenue and margin growth for this year are expected to remain level with 2007 – at 3 per cent and 7.6 per cent respectively – strong future growth, particularly in the outsourcing business, will produce market-beating revenue growth in both 2009 and 2010, and operating margins up by 0.5 per cent next year and by between 0.5 and 1 per cent the one after, he said.

The company is certainly in need of a shake-up. Full-year results published at the end of February showed overall revenue up by 3 per cent, but down by 8 per cent in the UK, which represents more than a fifth of the business. The stock price has fallen almost continuously from £24 in 2000 to a low of 89p earlier this year. And Mr Green's appointment last autumn ended a five-month stint with no chief executive after his predecessor, Martin Read, who had held the job for 14 years, was forced out by shareholders concerned about an 18-month European spending spree that cost the company the best part of £2bn.

The restructuring plan is the culmination of the review launched when Mr Green arrived, and it included an admission that the company's previous management had not made enough effort to integrate European takeovers. "The leadership was distracted and lost focus," he said. "The result was that it is difficult for a customer to deal with Logica across Europe and most effort was going into delivering local plans rather than group plans."

But despite yesterday's warm words about key strengths and focusing on growth, the market proved hard to persuade. The group's share price fell by 3.27 per cent over the course of yesterday, to close at 111p.

"The big question is whether the plans are radical enough," said George O'Connor of Panmure Gordon. "All the numbers are an order too small – Andy Green is doffing his cap to the blended delivery model but not really going for it and the reaction from shareholders will be: 'We'll believe it when we see it.'"

Matthew Palmer of Dresdner Kleinwort said: "The question will be how Logica can deliver against the plans, particularly heading into a period of macroeconomic uncertainty."