4th May 2011 07:00
4 May 2011
Logica reports strong first quarter orders and revenue
At its Annual General Meeting being held today, Logica will comment on trading for the first quarter of 2011. The following is the interim management statement based on unaudited results for the first quarter ended 31 March 2011.
Headlines1
Strong growth in orders, up 29% to £1,399 million
Revenue growth of 5%, with Consulting and Professional Services revenue stabilised after nine quarters of decline and Outsourcing Services up 13%
Growth driven by the commercial sectors, up 9% across the Group
Continue to expect growth above the market and modest margin improvement in 2011
Net debt/EBITDA to be below last year at the end of 2011 (2010: 0.8x)
1 Unless otherwise stated, all headline numbers relate to pro forma numbers asdefined on page 5. Q1 2011 Q1 2011 Q1 2011 Q1 2010 Q1 2010 growth % growth % actual pro forma* reported actual pro forma* Orders (£m) 1,399 1,088 1,093 28 29 Revenue (£m) 978 932 939 4 5 Book to bill (%) 143 117 116
*Q1 2010 revenue adjusted for the impact of acquisitions and disposals at Q1 2011 exchange rates
Commenting on today's announcement, Andy Green, CEO, said:
"We had a good start to the year on revenue, up 5%, and orders, up 29%. The order performance in the UK was particularly encouraging, boosted by significant multi-year contracts with the Serious Organised Crime Agency and Shell. The Michelin and Welsh Water contract extensions are also good examples of our ability to build long term client relationships.
"The Consulting and Professional Services market is recovering, strengthening order and revenue growth in the commercial sectors. Our focus across the Group remains on ensuring we have the right mix of resource to meet demand through 2011."
Outlook
Our first quarter revenue performance and good order backlog gives us confidence that revenue will grow above the market in 2011, despite a second quarter dampening effect due to holidays and a slower than expected recovery in the Benelux.
As previously signalled, first half profitability will be affected by costs to ensure we have the right skills base in place to meet market demand. The £30 million of expensed restructuring we are undertaking will deliver around £15 million of benefit starting from the end of the second quarter. The resulting savings will contribute to modest margin improvement overall in 2011.
Key wins and revenue drivers
New orders totalled £1,399 million over the quarter, with multi-year orders such as the UK Serious Organised Crime Agency contract and the multi-country deal signed with Shell for fuel card processing being the largest contributors to a 29% increase compared to last year (2010 pro forma: £1,088 million). Group book to bill was 143% in the first quarter (2010: 116%).
Our continued focus on growing with our large accounts is delivering particular benefit in the commercial sectors as they recover. At a Group level, this led to overall revenue growth of 9% across the commercial sectors, offsetting a 5% decrease in the Public Sector.
Our people
Over the last twelve months, our employee numbers have increased by about 3% to 39,864 (2010: 38,689). With attrition running at around 14%, we are continuing to recruit across most of our markets while also undertaking some targeted restructuring as planned. In India and the Philippines, where we continue to see good demand, we have significantly ramped up our recruiting efforts. Growth in headcount in our offshore centres over the last year was 14%, with approximately 5,900 in these centres at the end of March (2010: 5,200). The changing mix of our onshore headcount reflects an increase in both new recruits and subcontractors as we resource to meet growing demand, while managing the transition to increased offshore in our delivery of contracts.
Revenue by service line
Outsourcing
Outsourcing continued to be the main driver for growth with revenue for the quarter up 13% to £415 million. Our Outsourcing revenue continues to be driven by strong growth in applications management, which was up 20%. Infrastructure management revenue was stable despite higher volumes as we began to deliver under recent Swedish contracts and renewals with a higher offshore component.
A 66% increase in orders in the quarter saw book to bill at 183% (2010: 123%), driven by four major multi-year contracts which will accrue largely to the UK and the Netherlands. This compares to two deals of this size at the start of 2010.
Consulting and Professional Services
After nine successive quarters of year on year decline, Consulting and Professional Services revenue stabilised at £563 million (2010 pro forma: £565 million). This showed a solid improvement, compared to the first quarter last year when revenue declined by 8%. This also compares favourably to the second half of 2010 when revenue was down 3%. This was despite continued decline in the UK and the Benelux. In both these geographies, lower public sector spending was the primary driver weighing on Professional Services revenue.
Book to bill was strong at 114% (2010: 112%), with book to bill in all geographies outside the Benelux greater than 100%.
Revenue by geographyREVENUE (£m) Q1 2011 Q1 2010 Q1 2011 Q1 2010 Q1 2011 actual pro forma* growth % reported growth % pro forma actual France 224 201 11 208 8 Northern and 210 187 12 192 9Central Europe UK 179 187 (4) 187 (4) Sweden 159 146 9 135 18 Benelux 121 128 (5) 136 (11) International 85 83 2 81 5 Total 978 932 5 939 4
*Q1 2010 revenue adjusted for the impact of acquisitions and disposals at Q1 2011 exchange rates
France
A strong start to the year saw revenue up 11% to £224 million. This is driving strong utilisation onshore and good demand for offshore resource as we implement a number of important applications management contracts.
Order intake was healthy, driven by demand from Financial Services clients and new orders with clients such as EDF, GDF Suez and Orange. Book to bill was 101% (2010: 126%). Since the end of the quarter, we have signed a three-year extension to our existing contract with Michelin.
We have recruited around 400 employees on a year to date basis which is helping us to limit subcontracting and offset attrition.
Northern and Central Europe
Northern and Central Europe delivered strong growth, with revenue up 12% to £ 210 million. Finland benefited from continued spend among clients in the telecoms sectors. Danish revenue was up 30%, driven by the Posten Norden contract signed in the first quarter of 2010. Financial services clients continue to lead recovery in Germany. We expect seasonal slowing in revenue due to holidays in the second quarter but continue to recruit, particularly in Germany, to meet demand in Consulting and Professional Services.
Book to bill was strong at 118% (2010: 149%). Notable orders in the quarter were for Energinet in Denmark for a common data repository for the energy market players and with Scandinavia's largest independent research organisation, SINTEF, headquartered in Norway. Since the end of the quarter, we have also been downselected for an important project with the Finnish Ministry of Defence, building on our strong record of defence work in other geographies.
UK
Revenue was down 4% to £179 million against a strong comparative in the first quarter last year when the Public Sector was growing at 5%. For the first quarter of this year, Public Sector revenue was down 9%.
Reflecting the uneven nature of contract awards in an Outsourcing-led business, book to bill was 288% (2010: 67%). This was on the back of previously disclosed contracts with the Serious Organised Crime Agency (SOCA) and Shell. We also signed a contract renewal with Dwr Cymru Welsh Water (DCWW). Orders were up threefold to £515 million in the quarter. The opportunities we are seeing also give us confidence that there are good medium term opportunities in the public sector, albeit in an environment of slow decision making.
Holidays will have a dampening effect in the second quarter but the good order backlog underpins our confidence that the UK business will return to growth in the second half of the year.
Sweden
Large Outsourcing wins signed in the first quarter of 2010 drove strong growth compared to last year, with revenue up 9% to £159 million. As we come through 2011, contracted price reductions and the transformation to more offshore on larger contracts will slow growth in Outsourcing and have an impact on onshore utilisation.
Book to bill was 102% (2010: 144%). Our backlog will drive solid underlying revenue in Outsourcing through the year. However, new orders are expected to be more second half weighted. Partly offsetting this will be strong demand for Business Consulting, where higher than expected demand is driving shorter term subcontracting.
Benelux
Revenue was down 5% to £121 million. Lower discretionary spending in the Public Sector continues to slow recovery, overshadowing good overall growth in the commercial sectors. As a result, utilisation remained below our expectations at around 75% through the first quarter. We are working to move more employees onto commercial sector work in light of the continuing uncertainty in the public sector.
Orders in the quarter included the previously disclosed win for a BPO project with an important Dutch client. This drove strong book to bill of 143% (2010: 103%), with Consulting and Professional Services book to bill at 94% (2010: 87%).
International
The International business was back to growth in the first quarter, with revenue up 2% to £85 million. Australia was the only geography where revenue was down, against a strong first quarter in 2010.
We had a strong start on orders in North America and in Brazil, where we had an important new win with Brazilian major pulp and paper producer Suzano. This partly offset a more challenging economic environment which has affected order intake in Iberia. Overall, book to bill was 88% (2010:104%).
Financial position
We expect operating cash flow to exhibit the normal seasonal pattern, with stronger cash flow in the second half as we have seen in previous years. Net debt/EBITDA is expected to be between 1.1x and 1.2x at the end of June 2011 (June 2010:1.1x) and below last year at the end of 2011 (December 2010: 0.8x).
Our term loan maturing in November 2011 is expected to be repaid from within existing facilities in the second half of the year.
Annual General Meeting
Our Annual General Meeting is being held this morning at 10:30am at Kings Place, 90 York Way, London N1 9AG.
Financial calendar
The next scheduled statements in our financial calendar are:
5 August 2011 H1 2011 interim results
2 November 2011 Q3 2011 interim management statement
Disclaimer
This document contains forward-looking statements that involve risks and uncertainties concerning the Group's expected growth and profitability in the future. Actual events or results may differ from those described in this document due to a number of risks and uncertainties that are described within the 2010 annual report submitted to the National Storage Mechanism on 29 March 2011.
For further information please contact:
Logica Investor relations:
Karen Keyes/Jose Cano +44 (0) 7801 723682/+44 (0) 7525 273666/+44 (0) 20 7446 1338
Logica Media relations:
Carolyn Esser +44 (0) 7841 602391
Brunswick:
Tom Buchanan +44 (0) 20 7404 5959
Notes:
Book to bill percentage is a measure of the level of orders relative to revenue in the period, while backlog refers to the total value of orders booked over all previous periods but not yet recognised as revenue.
Comparative figures for 2010 are pro forma constant currency revenues. Pro forma adjustments have been made to take account of changes in composition of the Group through acquisitions and disposals.
Exchange rates used are as follows:
Q1 2011 Q1 2010 £1 / € 1.17 1.13 £1 / SEK 10.37 11.23 £1/USD 1.61 1.57
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