Logica is today issuing an interim management statement based on unaudited results for the third quarter ended 30 September 2008.

2008 actual 2007 pro forma (adjusted* at current exchange rates) 2007 reported Q3 YTD growth (pro forma) Q3 growth (pro forma) Q3 growth (actual)
Q3 REVENUE (£m) 845 789 711 7% 7% 19%

* Q3 2007 revenue adjusted for the impact of acquisitions and disposals in 2007 and 2008 (but before currency adjustments) was £707 million.

- Revenue for the third quarter and nine months up 7% on a pro forma constant currency basis
- Full year revenue guidance raised to slightly above 4%
- Third quarter orders increased 13% over 2007 on a pro forma constant currency basis
- Programme for Growth on track
- Outsourcing organisation to be rolled out to additional countries in the fourth quarter
- Increase to 4,400 in offshore and nearshore centres at end of September
2009 cost savings to be accelerated to £60 million from £50 million

Commenting on today’s announcement, Andy Green, CEO, said:
“We are pleased to report another strong quarter with revenue growth of 7%. In view of our third quarter performance, we now expect full year revenue growth to be slightly above 4%.

“Our increased customer focus has resulted in a significant growth in the volume of opportunities in the pipeline. Although we are anticipating a tough economic environment in 2009, we continue to expect the IT services market to grow faster than GDP across Europe. We remain confident that we have the right plan and a strong team in place to outperform the market.

“I am pleased to see the Programme for Growth delivering well. However, in light of current market uncertainties, we are also taking active steps which include accelerating our 2009 cost savings to protect our margins. ”

Overview
Revenue for the third quarter of 2008 was £845 million, with positive currency impact contributing to 19% reported revenue growth (2007 reported: £711 million). On a pro forma basis, third quarter revenue growth was 7%. Revenue for the nine months to the end of September was £2,625 million, up 7% on a pro forma basis.

Orders in the third quarter increased 13% over 2007, resulting in a book to bill for the first nine months of 99% (2007: 94%). Significant orders in the quarter included our contract with Norwegian retailer Reitan. The volume of opportunities also remained high into October, with wins in the month with BT and with the Dutch Home Office. We also booked continuing orders in October under our Michelin framework agreement signed earlier in the year.


Programme for Growth
In April, we laid out a programme underpinned by cost savings, to strengthen the sales capability of Logica and to improve execution. Our 2008 cost savings remain on track and are now likely to be at the top end of our £18 to £20 million range, with reinvestment broadly in line with cost savings. We are also accelerating our 2009 savings and now expect to deliver £60 million of cost savings against our initial target of £50 million. This will allow us to continue to invest selectively, although at a lower level, across the other three areas of the Programme (Focus for Growth, Accelerate Blended Delivery, One Logica).

Focus for Growth: As indicated at the time of our October webcast, our High Growth Areas pipeline remains healthy, with a doubling of opportunities in the pipeline since April. Jean-Marc Lazzari started in September as Chief Executive, Outsourcing Services, and will be rolling out the outsourcing organisation across the group in the fourth quarter, with a more consistent approach to targeting new orders. Our ability to grow revenue and proactively target key accounts has been further strengthened with additional sales and account management resources in the organisation since August. The UK business, in particular, is expected to have hired 25 sales professionals by the end of 2008.

Accelerate Blended Delivery: At the end of September 2008, we had 4,400 people employed in our nearshore and offshore centres. We expect this to increase to around 5,000 by the end of 2008. Our target remains 8,000 by the end of 2009.

One Logica: We have undertaken a comprehensive review of the business processes and tools that support Logica's management of client opportunities from qualification through to contract signature. The resulting solution, known as BidSmart, builds on existing best practice from across the group. It is being introduced in the fourth quarter of 2008 and implemented across the business during 2009. This new process will ensure Logica continues to deliver sustainable value to clients, while effectively managing business risk. A single resourcing tool is also being adopted across the organisation to maximise utilisation and will be available for use across the group by the end of the first quarter of 2009.

Competitive Costs: In order to underpin our margin targets into 2009, we are accelerating this element of the Programme and now expect to achieve 2009 cost savings of £60 million (against our initial target of £50 million). Our 2010 annualised cost savings target of £80 million remains unchanged.

Outlook
For 2008 our contracted order backlog gives us confidence that we will achieve growth slightly above 4%, with full year growth in our main markets at least in line with the IT services market. We have taken active steps to manage recruitment, costs and subcontractors to underpin our 2008 margin target in more difficult market conditions.

We expect that European economies will face a downturn in 2009. We still expect IT services to grow ahead of GDP and will be investing selectively to ensure Logica can grow revenue ahead of the market. We are seeing some evidence of longer decision making and of contracts being broken into smaller orders but the volume of opportunities in our pipeline has been increasing. We are still planning on the basis of modest revenue growth in 2009. In a revenue growth environment, we would still expect to deliver a c0.5% margin improvement.

Additionally, given the level of uncertainty in the market it is important that we take steps to ensure we can protect our margins in less favourable market conditions. We are therefore accelerating our cost savings. The Competitive Cost programme is now expected to deliver £60 million of cost savings in 2009 against our initial target of £50 million. We currently plan to hold back around a quarter of the expected £30-40 million of investments in 2009 until the economic climate is clearer. We have also cut back heavily on discretionary spend and capital expenditure, substantially stopped non-billable recruitment and significantly reduced billable recruitment.

Employees
Employee numbers remained stable in the third quarter as we continued to manage our recruitment and utilisation carefully in the context of an uncertain market environment. We had 39,245 employees at the end of September compared to 39,201 as at the end of June. Attrition for the group remained unchanged at just under 16%, with attrition in the Netherlands being the highest among our large geographies.

As we said at the interim results, we have deployed a continuous programme to replace subcontractors with permanent staff where we can. Our rigorous new resourcing approach seeks to utilise offshore resource in the first instance before recruitment or the hiring of additional subcontractors, with the choice dictated by local demand outlook. We believe these actions will maximise the utilisation of our existing staff while maintaining a reasonable level of subcontracting as a buffer against any future demand weakness. As a result, the level of subcontractors is down slightly in the third quarter.