29th Mar 2011 10:00
29 March 2010
Logica plc (`Logica' or the `Company')
Annual Financial Report
The following documents have been posted, or otherwise made available, to shareholders:
1. Annual Report and Accounts 2010
2. Notice of 2011 Annual General Meeting
3. Form of Proxy for the 2011 Annual General Meeting
In accordance with Listing Rule 9.6.1, copies of the above documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.
The Annual Report and Accounts and the Notice of Meeting are also available on the Logica website at www.logica.com and in hard copy upon request to the Company Secretary, Logica plc, 250 Brook Drive, Green Park, Reading RG2 6UA.
The next Annual General Meeting of the Company will be held at Kings Place, 90 York Way, London N1 9AG on 4 May 2011 at 10.30am.
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 23 February 2011.
For further information please contact:
Logica Investor relations: Karen Keyes +44 (0) 20 7446 1338 /+44 (0) 7801 723682 Logica Media relations: Carolyn Esser +44 (0) 7841 602 391
Brunswick: Tom Buchanan +44 (0) 20 7404 5959
UNEDITED EXTRACT FROM 2010 ANNUAL REPORT, DATED 8 March 2011
Management responsibilities
Each of the Executive and Non-Executive Directors, whose names and functions are referred to on pages 44 to 46, 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 continuous monitoring of strategic and operational risks is the responsibility of the Board and line management, respectively. In order to address these challenges on behalf of the Board, the Executive Committee has responsibility for the regular evaluation of generic and specific risks within the business and the implementation of mitigation plans to address them.
The risk management process identifies, evaluates and manages significant risks faced by the Group. Risks are assessed with reference to the achievement of our business objectives and according to current market and economic issues. The year was the second in which we have completed a cyclical process of top down and bottom up review. This process largely repeated 2009, although the risks themselves were amended and in some areas, this meant the addition of sub-risks. Overall the Executive Committee-owned risks were rationalised from ten to eight.
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.
The key risks and measures to mitigate risks identified by the Board are listed on pages 24 and 25.
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 20 to 23.
Clients entrust us to manage their risk. Our risk management policy and risk mitigation is regularly reviewed by the Board, Audit Committee and Executive Committee.
Improving differentiation between Logica and our competitors
Logica's client intimacy strategy is to engage with our clients in a way that drives value and deepens the business relationship. Our focus is on solving business challenges and supporting business objectives rather than purely implementing technology. Logica aims to develop a unique and rewarding relationship that differentiates us from the competition. The value we create protects us from commoditisation and drives margin improvement.
The client intimacy strategy depends on choosing clients who will work well with us. Logica develops a strong ecosystem through both partner and internal engagement, to provide a sustainable business relationship that drives value for all parties. The strategy is measured through awareness, client satisfaction and key financial performance indicators (see pages 20 to 23).
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.
We are proactively managing risks in this area and implementing and mitigating actions implemented as necessary to address specific business issues. There remains scope for ongoing action. Specific areas, such as attrition, are under increased focus. As the level of attrition has risen in the last year our focus has been on managing this to agreed levels and understanding key skill groups to be retained in the business through resource planning. Where specific skills have been required, targeted recruitment campaigns have led to improvements. We are implementing a global HR process based on Oracle 12 to address our HR needs and manage risks via our global shared service centre in Manila.
Major contract related risks
Our contracts are complex and vary in scope and length. They may incur penalties for non-performance so we need good risk management, controls and diligence in the way we deliver them. This means that we need good risk management, control mechanisms and diligence in the way we monitor delivery of our contracts to prevent reputational damage and financial impact to our revenue and profit if we fail to deliver. We monitor around 7,000 projects per year. In 2010, an average of nine were put forward for our regular review of risk by the Board.
We manage risk through a process that considers both project and operational risk, and is underpinned by a comprehensive, well proven quality management system. We review all major and difficult projects as part of our operations reviews at Group level. We continue to standardise development tools and methodologies. We communicate, offer training and provide regular updates as to best practice as our industry evolves.
Delivering our Strategic Change Programmes to achieve operational excellence and improvements in operating margin
The market is increasingly demanding the ability to deliver globally. This in turn opens up the market to an increasing number of global players. An inability to demonstrate global process excellence in a timely manner in this environment would result in lower win rates, lower order intake at the bidding stage and lower revenue once in the delivery stage over the longer term, leading to poorer margins in comparison to those `best in class'.
We have a group wide ethos and brand designed to support a focus on operational excellence and margin. We have a global blueprint for how we run the business, based on common processes, business support and knowledge management tools. This provides a basis for industrialised processes, supported by common management systems. We have a programme of change management that is centrally driven across all our programmes from HR to delivery, supported by an enterprise architecture to ensure coherence that we ultimately deliver the business' strategic objectives.
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 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 a problem. Our goal is to always ensure we know how to respond to address client concerns early to preserve our relationships with them and their satisfaction with us over the longer term.
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 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 2010 have allowed us to assess some of the business continuity plans we maintain in all geographies. We reacted to incidences of influenza; air travel disruption following volcanic activity; storms in the Philippines; strikes in France 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 all these situations. We have 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 2010.
Dependencies on major clients and regional market sector risks; macroeconomic and industry level trends and changes affecting the global competitive landscape; loss of authorisation or accreditation from vendors or disruption of key supplier relationships
We have a number of significant global and regional clients and operate mostly in 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. We are also 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. In addition, 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.
As well as maintaining a balanced geographical spread, the Group's business is well balanced across different market sectors and clients. The Logica strategy has a priority of client segmentation. Identified clients receive particular attention to ensure stability, account growth and client satisfaction. In 2010, no client accounted for more than 3% of revenue. 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 2010. To respond to longer-term market changes, our strategic investment in sector thought leadership, technology practices and sales programmes is aimed at producing innovative solution and service propositions and building the sales pipeline. This should 1) ensure (alongside our Business Consulting) that we are seen as essential in helping the client react to trends in their industry and 2) stimulate new client revenue opportunities. Development of the understanding of the client's ecosystem ensures key relationships are established externally and across broader business relationships.
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 the specific mitigating actions required.
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 63 to 81.
2010 2009 £'m £'m
Short-term employee benefits (including bonus) 6.3 5.4
Post-employment benefits 0.5 0.5 Termination benefits - 1.3 Share-based payment 4.6 3.1 11.4 10.3
The amount for share-based payment is that calculated in accordance with IFRS 2 `Share-based payment'.
vendorRelated Shares:
LOG.L