31st Mar 2010 09:45
31 March 2010Logica plc (Logica)Annual Financial Report
The following documents have been posted to shareholders:
1. Annual Report and Accounts 2009
2. Notice of 2010 Annual General Meeting
3. Form of Proxy for the 2010 Annual General Meeting
In accordance with Listing Rule 9.6.1, two copies of each of the above documents have been sent to the UK Listing Authority and will shortly be available for viewing at the Document Viewing Facility, which is situated at:
The Financial Services Authority
25 The North ColonnadeCanary WharfLondon, E14 5HS
Furthermore, in accordance with Disclosure and Transparency Rule 6.1.2, two copies of proposed new Articles of Association have been forwarded to the Financial Services Authority. A copy of the proposed Articles is available for inspection at Logica's registered office at 250 Brook Drive, Green Park, Reading RG2 6UA and will also be available for inspection at the Annual General Meeting (AGM) venue from at least 15 minutes prior to the AGM until the conclusion of the AGM.
The Annual General Meeting will be held at Kings Place, 90 York Way, London N1 9AG on 5 May 2010 at 10.30am.
All documents will also be available on the Logica website at www.logica.com from 1 April 2010 and in hard copy upon request to the Company Secretary, Logica plc, 250 Brook Drive, Green Park, Reading RG2 6UA.
In accordance with Rule 6.3.5 of the Disclosure and Transparency Rules, extracted below from the Annual Report is a management report in full unedited text which contains a responsibility statement, principal risk factors and details of related party transactions. Accordingly, page numbers refer to those in the Annual Report. A condensed set of financial statements was included in the final results announcement issued on 24 February 2010.
For further information please contact:
Logica Investor relations: Karen Keyes/Frances Gibbons +44 (0) 20 7446 1338/+44 (0) 7801 723682 Logica Media relations: Louise Fisk +44 (0) 7798 857770
Brunswick: Tom Buchanan +44 (0) 20 7404 5959
UNEDITED EXTRACT FROM 2009 ANNUAL REPORT, DATED 5 MARCH 2010
Management Responsibilities
Each of the Executive and Non-Executive Directors, whose names and functions are referred to on pages 37 to 41, confirm that, to the best of their knowledge:
* the Group financial statements, which have been prepared in accordance with IFRSs, as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and * the business review and risk factors include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
Risk Management
The Board recognises the need to understand and control the variety of risks to which the Group is exposed. In order to address these challenges on behalf of the Board during the year, the Audit Committee oversaw the Executive Committee's risk management activities. The Executive Committee updated the framework for managing risk within the Group which saw the major risks taken back into its ownership. The Executive Committee took responsibility for the regular evaluation of generic and specific risks within the business and the implementation of mitigation plans to address them. Five practice panels responsible respectively for the areas of delivery, operations, finance, human resources, and sales and marketing, supported the Executive Committee, particularly in updating policy and processes to improve the Group's risk management practices.
The risk management process identifies, evaluates and manages significant risks faced by the Group. Risks are assessed with reference to the achievement of the Group's business objectives and according to current market and economic issues. The continuous monitoring of strategic and operational risks is the responsibility of the Board and line management respectively. The risk process has been in place for the year under review and up to the date of this Report.
As referred to in the internal control section above, clearly defined delegation of responsibilities and authorisation levels contribute to a comprehensive system which exists for controlling these risks and ensuring they are adequately addressed. Core operating procedures, common to all areas of the Group, are clearly documented in the business management system referred to in the internal control section.
Regular internal control reviews are presented to the Audit Committee. Audit Committee papers, including internal control reviews, are circulated to all Board members. The key risks and measures to mitigate risks identified by the Board are listed on pages 70 to 71. The conclusions arising out of the Group's risk management activities are closely interlinked with the evaluation and management of the Company's Key Performance Indicators (KPIs), which are set out on pages 136 to 137.
Clients entrust us to manage their risk. Our risk management needs to cover all our principal risks, including client and contract risk, and be implemented consistently through Logica. Our progress on risk mitigation is regularly reviewed at the Board. Our principal risks are:
Major client dependencies and regional market sector risks
We have a number of significant global and regional clients and operate in the main European geographies. A change in the strategy or in the buying pattern of a key client, or changes in structure of local markets (e.g. clients consolidating), could affect our order and revenue performance and/or our profitability. A more macro level change in any one market could also adversely affect the results of the Group, and this is addressed in the risk below.
As well as maintaining a geographical spread, the Group has a well balanced spread of business across market sectors and across its 10,000 clients. We have identified 57 focus accounts from across the Group which are receiving particular attention to ensure stability, account growth and client satisfaction are all achieved. In 2009, no client accounted for more than 3% of revenue. In 2009, we also moved our delivery resources into common resourcing pools, which has allowed us to be more reactive to shifts in demand.
Major contract related risks
Our contracts are complex and vary in scope and length. They may incur penalties for non-delivery. This means that we need good risk management, control mechanisms and diligence in the way we monitor delivery of our contracts to prevent the reputational damage and financial impact to our revenue and profit if we fail to deliver. We manage around 12,000 projects a year. In 2009, around 14 major projects were put forward for review in each Board report.
We manage risk through a process that considers both project and operational risk, and is underpinned by a comprehensive, well proven quality management system, which our people are required to adopt. As part of our Operations Reviews at Group level, we require a monthly review of all contracts which have been identified as a risk. We communicate, offer training and update regularly as best practice across our industry evolves. We continue to standardise development tools and methodologies.
Business continuity risks associated with operational failure, information systems and data security
A failure of our systems, or a failure of our operational and company management processes, could lead to a loss of client confidence in and satisfaction with Logica which would undermine our market perception, our brand, and as a result, the leading position we enjoy in many markets today.
Standardisation of processes, systems and tools through the One Logica programme (see pages 14 to 15) is improving operational effectiveness and should allow us to react more rapidly than in the past in the event of a failure. Our delivery and account teams understand the processes to follow, should we become aware of or a client alerts us to a problem. Our goal is always ensuring we know how to respond to address client concerns early and preserve our relationships with them and their satisfaction with us over the longer term.
Dependence on recruitment and retention of suitably qualified personnel
Our ability to meet the demands of the market and compete effectively with other IT suppliers is, to a large extent, dependent on the skills, experience and performance of our people as well as on an appropriate balance of onshore, nearshore and off shore resources. Attrition, our nearshore and off shore headcount and employee satisfaction all remain key performance indicators as the long-term sustainability of our business relies heavily on motivated and inspired people who feel part of a long-term future to deliver value to our clients. See pages 136 to 137 for a description of the KPIs.
While we maintained well established recruitment processes, the absolute level of recruitment declined and attrition slowed in 2009, making it easier to retain people. Nevertheless, we recognise slowing attrition will reverse as the economy recovers. The recently unveiled employee value proposition encourages our people to `shape the future' for themselves and our clients, supported by inspirational leadership, talent development (including the Logica University), the right incentives and strategic resourcing to facilitate making sure we have the right people in the right places. At senior levels of the Company, we also have reviewed our incentives (see page 59) and have a clear succession planning process.
Achieving operational process excellence in our global blended delivery model
The market is increasingly demanding the ability to deliver globally. With 45% of our opportunities in 2009 requiring a blend of onshore and off shore work. An inability to demonstrate process excellence in a timely manner would result in lower win rates and lower order intake at the bidding stage and lower revenue once in the delivery stage over the longer term.
We are industrialising our processes, supported by common management systems. We are adopting common service management tools and processes known as ITIL service management (ITSM) for all our Outsourcing business. These steps are further strengthening our ability to deliver services and application management on a global basis from any delivery centre, giving us greater flexibility to manage issues.
Loss of authorisation or accreditation from vendors or disruption of key supplier relationships
A portion of Logica's revenue is dependent on continued authorisation and accreditation by certain vendors of IT software and hardware, such as SAP and Oracle. Without these service authorisations and accreditations, we would be unable to offer certain products and services. Failure to maintain authorisations and accreditations could also mean being unable to fulfil contractual obligations.
Alliance management is tasked with developing engagement plans with key suppliers that link Logica to these organisations at management levels and across functions, maintaining a mutually positive and beneficial business arrangement.
Regulatory compliance risks
Compliance risks need to be effectively understood and managed. Our main risk areas are: 1) data and information security, including Data Protection regulations, 2) environmental standards and Corporate Responsibility and 3) global staff mobility issues including adherence to immigration and tax regulations.
We proactively monitor the complete breadth of compliance requirements across the individual geographies and regulatory domains. Formal risk assessments identify specific mitigating actions required. Standard governance processes are being implemented across the Group.
Business continuity risks associated with a pandemic, terrorist incident or other external event, including exposure to geopolitical, economic and social disruption, particularly in parts of Europe and in India
Continental or global influenza or related virus pandemic and terrorist attacks continue to be possible threats. Our wide geographic presence (see pages 12 to 13) also means we could be exposed to political, financial, economic and social unrest. While generally outside our control, any of these incidents affecting a large number of employees or a group critical to a client project could impact our operations or our delivery against contract obligations. This could affect client confidence in and satisfaction with Logica, with any resulting lost business potentially affecting revenue and profitability.
Events in 2009 allowed us to assess some of the business continuity plans we maintain in all geographies, as we reacted to the incidence of the H1N1 virus in a number our geographies as well as to adverse snow conditions in the UK. The investment we have made in the last few years to enable our people to work from home paid dividends in both these situations. In 2009, we also tested our local plans against a range of disaster scenarios. Our balanced business and market portfolio and our flexibility in cutting costs also provided resilience to significant revenue declines in some of our sectors, geographies and service lines in 2009 (see pages 19 to 33 for more detail).
Macro economic and industry level trends and changes affecting the global competitive landscape
We are exposed to unrest in world market sectors, such as finance, oil and gas, due to a range of factors largely outside of our control. Many market sectors in which the Group operates have been susceptible to rapidly changing technologies, regulation, variations in market economic conditions and fluctuations in client demand. The Group needs to be able to continue to respond and adapt whilst, in a timely and cost-efficient manner, continuing to deliver existing products and services. Failure to do so will be a risk to the Group's success.
Our balanced business and market portfolio and our flexibility in cutting costs provided resilience to significant revenue declines in some of our sectors, geographies and service lines in 2009 (see pages 19 to 33 for more detail). To respond to longer term market changes, our strategic investment in sector thought leadership and technology practices (see pages 16 to 17) is aimed at producing innovative solution and service propositions, which should: 1) ensure (alongside our Business Consulting) that we are seen as essential to helping the client react to trends in their industry and 2) stimulate new client revenue opportunities.
Achieving the objectives set for the Programme for Growth
The Programme for Growth we launched in 2008 was the basis on which we expected to improve returns to shareholders between 2008 and 2010. The uncertain economic environment did make it difficult to achieve our anticipated revenue growth and margin in 2009 but we redressed this through further cost savings and achieved most of our objectives (see pages 14 to 15 for more). We now have visibility of the planned cost savings in 2010 and have set out a clear programme of investments aimed at delivering long-term revenue growth above the market. The risk for 2010 will be ensuring that costs do not slip back in and that our people are provided with another framework for understanding our ongoing goals.
Although we will not require the same level of management supervision as in 2009 to achieve our 2010 objectives, we will continue to have some central monitoring of the programme under Seamus Keating. Progress will continue to be reviewed monthly by the Executive Committee, with investment levels adjusted in the light of trading conditions and business forecasts. At the time of our 2009 results, we announced an updated plan which will help us keep our people focused on our longer term objectives (see pages 16 to 17).
Related party transactions
Remuneration of key management personnel
The remuneration of the Directors of the Company and the Group's Executive Committee, who are the key management personnel of the Group, is set out below in aggregate for each of the categories required by IAS 24 `Related Party Disclosures'. Further information about the remuneration of individual directors is disclosed in the Report of the Remuneration Committee on pages 55 to 69.
2009 2008 £'m £'m
Short-term employee benefits 5.4 7.8
Post-employment benefits 0.5 0.6 Termination benefits 1.3 1.2 Share-based payment 3.1 3.2 10.3 12.8
The amount for share-based payment is that calculated in accordance with IFRS 2 `Share-based payment'.
vendorRelated Shares:
LOG.L