Could it be that Logica’s soon-to-be ex-chairman Philip Hughes is bailing out just in time? The company is flagging that profits for the second half will be significantly below City expectations. For following its statement at the interim stage that its US operations would make a positive contribution by year-end, Logica now says that Logica Data Architects Inc will end the year trading at a significant loss. The problems allegedly lie with contracts in the financial sector, which the company thought would show through this year but which now will not be concluded in the current half. There is also reported to be some weakness in sales of product-related professional services, and all this added to restructuring costs means that the US operation will come in at a loss. Logica says that similar problems are being experienced in the UK financial sector as regards contracts but on a smaller scale – a major problem because the financial sector accounts for 30% of its business. Although other areas of business are said to be performing broadly in line with expectations, Logica has further woes, since additional resources will be necessary to complete two major fixed price contracts (one of which is believed to be the Eastern Seaboard deal in the US) and these overruns will also impact this year’s figures. The company says that it is taking action to ensure that it returns as quickly as possible to its customary level of profitability – but that is expected to mean restructuring costs to hammer the figures further. The US side is expected to be back in the black sometime in the next financial year, when the company as a whole is said to be well placed to resume its growth. However, the City, already expecting a stagnant year from Logica, was not placated, and the shares responded to the statement with an immediate plunge of 55 pence to 244 pence, falling another 13 during the day to close at 231 pence.
