Logica Shares Slump On Worse-Than-Expected Earnings

Shares in Logica PLC (LOG.LN slumped Friday after the IT services company posted worse-than-expected first half results.

The U.K.-based company, which provides consulting, outsourcing and information technology services to governments and companies across Europe, said its adjusted operating profit for the six months to June 30 fell 10% to GBP113 million from GBP125 million in the prior year, hit by GBP20 million restructuring costs.

At 0743 GMT, Logica shares were down 16 pence, or 15.2%, at 87 pence, the biggest faller on the FTSE 250.

Investec Securities analyst Julian Yates, keeping a sell rating, said the numbers were a disappointment. "They are worse than what we assumed in our cautious stance. The results highlight material weakness in the numbers and outlook."

The share fall comes amid wider stock declines across European markets which have continued in a global sell-off as investors take their positions in the wake in of the euro-zone debt crisis and on fears over the strength of the U.S. economic recovery.

Yates said the company's Benelux operations, hit by a sharp decline in public sector contracts in the Netherlands, continued to underperform and is a "loss making" region. He also said its Swedish and U.K. operations underperformed on margins, hit by the re-negotiation of large orders.

Operating margin in the half declined to 5.7% from 6.7% a year earlier. The company, while posting a 7% and 15% increase in sales and orders respectively for the period, admitted that group margin improvement is now "dependent" on progress in the Benelux.

In May, strong demand for IT services from the private sector helped Logica deliver a better-than-expected first-quarter performance, with the company confident that its embattled U.K. business would return to growth in the second half of 2011.

However, the group, which has counted Airbus (ABI.YY), Finnair Oyi AKT (FNNNF), Statoil Hydro SA (STO), Coca-Cola Co. (KO), Cie Generale des Etablissements Michelin (ML.FR) and the U.K. Ministry of Defence among its customers, has been hurt by government spending cuts across Europe, particularly in the U.K.

By Simon Zekaria, Dow Jones Newswires; [phone]; [e-mail]