27th Feb 2008 07:00
27 February 2008
Logica reports preliminary results for the year ended 31 December 2007
Headlines
Revenue up 3% on a pro forma basis
Strong revenue growth across major European countries and in the UK Public Sector offset by weakness in the UK commercial sectors
Solid underlying profit performance in major geographies outside the UK
Weaker operating profit offset by lower tax rate at EPS level
Strong cashflow with cash conversion of 126%
Net debt of ‚£483.2 million, after the ‚£130.0m share buyback completed in Q4 2007
Continued growth in dividend, up 4% to 5.8p
New CEO in place since 1 January; outcome of review to be communicated by the beginning of May
Logica name adopted across the group from today; important step in wider integration of the business
For the year ended 31 December 2007, results were as follows:
Continuing operations 2007 2006 restated Growth Restated Pro forma Revenue ‚£3,073.2m ‚£2,420.7m 27% 3%
Adjusted operating profit ‚£207.6m ‚£203.4m 2% (18%)
Adjusted operating margin 6.8% 8.4% Adjusted basic EPS 10.2p 10.4p (2%) Dividend per share 5.8p 5.6p 4% Statutory results Operating profit ‚£109.7m ‚£141.9m (23%) Profit before tax ‚£84.1m ‚£116.6m (28%) Basic EPS 5.4p 6.4p (16%)
Commenting on today's announcement, Andy Green, CEO, said:
"Everyone at Logica understands the need to improve on our 2007 performance. We are committed to delivering value to shareholders and customers alike.
"In my first few weeks, I have heard from our customers that they see us asopen, flexible and local. The launch of the Logica brand creates a realopportunity to add to these strengths, with innovative services from across thegroup backed by best-in-class blended delivery from around the world. We willset out how we expect this to create value for our shareholders by thebeginning of May."
A separate press release regarding the Logica name change has been issued today.
For further information, please contact:
Logica Media relations: Carolyn Esser/Louise Fisk +44 (0) 7841 602391/+44 (0)7798 857 770
Logica Investor relations: Karen Keyes/Frances Gibbons +44 (0) 20 7446 4341 (mobile: +44 (0) 7801 723682)
Brunswick: Tom Buchanan/Craig Breheny +44 (0) 20 7404 5959
Notes:
1. 2006 reported figures have been restated to reflect the disposal of the Telecoms Products business. See notes to the accounts for details.
2. Cash conversion represents net cash inflow from trading operations dividedby adjusted operating profit. Net cash inflow from trading operations is cashgenerated from operations before cash flows from the purchase of property,plant , equipment, intangibles and restructuring and integration activities.
3. Unless otherwise stated, the Logica information in this release relates to pro forma results. Comparatives are based on pro forma IT services and: reflect average 2007 exchange rates
exclude businesses disposed of in 2006 (pdv.com and No Limits) excludes French passthrough revenue are adjusted to include Caran (sold in June 2007) to the beginning of June2006 and the rest of WM-data (Wm-data acquisition completed in October 2006)for the full year (i.e. from January to December 2006)
are adjusted to include the acquired Siemens Business Services (acquired in March 2007) for the nine months from March 2006
are adjusted to include the disposals and acquisitions of certain non-core businesses that took place during the year.
4. Adjusted operating profit and margin are from continuing operations and, where applicable, before exceptional items and amortisation of intangible assets initially recognised at fair value in a business combination.
Pro Pro FY forma Restated forma Restated '07 FY '06 FY '06 growth growth ‚£'m ‚£'m ‚£'m % % Operating profit 109.7 141.9 (22.7) Add back impact of: Exceptional items 23.2 23.9
Amortisation of acquisition related
intangibles 74.7 37.6 Adjusted operating profit 207.6 254.5 203.4 (18.4) 2.1
5. Adjusted earnings per share is based on net profit attributable to ordinary shareholders, excluding the following items:
discontinued operations exceptional items
mark-to-market gains or losses on financial assets and financial liabilities designated at fair value through profit or loss
amortisation of intangible assets initially recognised at fair value in a business combination
tax on the items above, where applicable
6. Exchange rates used are as follows:
FY '07 H2 '07 H1 '07 FY '06 ‚£1 / ¢â€š¬ Average 1.46 1.44 1.48 1.47
End of period 1.36 1.36 1.49 1.48
‚£1 / SEK Average 13.51 13.35 13.67 13.57
End of period 12.87 12.87 13.76 13.39
Financial overviewGroup revenue was ‚£3,073.2 million, up 27% on a reported basis (2006 restated:‚£2,420.7 million). This represented pro forma growth of just over 3%, in linewith our most recent guidance. Group adjusted operating profit was ‚£207.6million (2006 restated: ‚£203.4 million), representing an adjusted operatingmargin of 6.8%. This was below the 8.4% restated level achieved in 2006. Theweaker 2007 operating performance was somewhat offset by a lower tax rate,giving adjusted EPS from continuing operations of 10.2p, a 2% reduction over2006. Cash flow was strong in the second half, with full year cash conversionof 126%. The proposed final dividend is 3.5p, representing a 4% increase inthe total dividend for the year to 5.8p. Closing net debt was ‚£483.2 million,with adequate headroom in our current bank facilities even after we redeem the¢â€š¬303 million convertible bonds maturing in September 2008.
Review of the business
Andy Green joined the business as CEO in January and has been spending time with customers, employees and other stakeholders. We will communicate the conclusions from our review of the business by the beginning of May.
Priority areas are increasing customer focus, accelerating integration acrossthe group, building on the current global delivery capability and establishinga more competitive cost structure. Focus in all these areas will beparticularly important in the UK where the progress we have made to date hasnot been sufficient to return the commercial sectors to revenue growth in linewith the market or to a sufficient level of profitability.
Rebranding to Logica
The Logica brand is being adopted across the company from today and will replace all existing brands. The move to one Logica is an important step in the integration of the group. As previously communicated, we will incur an incremental cost of around ‚£5 million in 2008 to implement this.
Outlook
Our outlook for 2008 is set against an uncertain market environment. Although we have seen a few incidences of slower spending, market activity levels generally appear resilient.
We remain alert to changes in customer sentiment and are carefully monitoringutilisation levels and recruitment. We are planning more flexible resourcingthrough the use of subcontractors and our blended delivery capability.
We expect the recently-announced Outsourcing Services division to lead to further growth in revenue from outsourcing and in the percentage of work delivered from offshore locations.
Based upon our order backlog and the pipeline of opportunities in our major markets, we currently expect 2008 constant currency revenue growth will be around a similar level to 2007.
Recent contract wins
Order momentum improved over the last few months of 2007 and into the first months of 2008.
Outsourcing wins in the UK include a new applications management contract withairport authority BAA and an IT outsourcing contract win with the UK housingdivision of Taylor Wimpey. In the Netherlands, we have signed a ¢â€š¬40m deal withKPN to outsource its "best in class" HR shared service centre and we aredeveloping an integrated back office solution for travel and toll servicesprovider Movenience. In France, we have signed a ¢â€š¬15 million applicationsmanagement outsourcing contract with a major French bank. Order momentum has been particularly strong in the Nordics, where we havesigned our first major cross-selling project involving a significant offshorecomponent with Swedbank. We have seen a number of new wins in the PublicSector, which include IT outsourcing contracts with the Norwegian Department ofLabour, the Oslo Department of Education, the Finnish pensions agency andseveral Finnish government agencies in the transport sector. We have alsosigned a ¢â€š¬10m IT cooperation agreement with Bankgirocentralen, Sweden'sclearing services provider, and an applications management contract with theCity of Gothenburg.
We continue to consolidate current partnerships and develop new ones. Ford ofEurope has selected Logica in the UK as a preferred supplier for IT resources,extending the relationship into its 25th year. In the Netherlands, DSM hasextended its 2005 manufacturing IT contract and we continue to build on thework we are doing with EDF in France. We have also put a ¢â€š¬10m frameworkagreement in place with the European Patent Office.
Operating performance - continuing operations
REVENUE BY GEOGRAPHY Growth Growth FY'07 on FY'07 on FY'06 FY'06 FY'06 FY'06 FY'07 Pro forma Restated Pro forma Restated ‚£'m ‚£'m ‚£'m % % Nordics 836.9 790.1 190.5 5.9 339.3 UK 662.5 718.4 718.4 (7.8) (7.8) France 588.2 530.5 560.0 10.9 5.0 Netherlands 484.7 449.2 447.6 7.9 8.3 Germany 179.6 164.4 168.6 9.2 6.5 International 321.3 328.1 335.6 (2.1) (4.3) Total continuing 3,073.2 2,980.7 2,420.7 3.1 27.0
Our major continental European geographies performed well through the year, with growth above the market in France, Germany, the Netherlands and the Nordics. The UK Public Sector, which continued to account for over half of UK revenue, delivered growth well above the market, up 14% in the second half.
However, weakness in our UK commercial sectors continued to have a dampeningeffect on overall group performance. The Energy and Utilities business in theUK returned to growth, with second half revenue up 8%. In the Internationalbusiness, revenue was down 2% as a result of contractual price reductions inthe Edinfor business and the completion of a major telecoms contract in Asia inearly 2007. Excluding the UK commercial business, revenue growth for the groupwas ahead of the market at 7%.
Our top 10 customers accounted for 15% of group revenue in 2007 (2006, excluding WM-data: 21%).
ADJUSTED OPERATING PROFIT BY GEOGRAPHY
Growth Growth FY'07 on FY'07 on FY'06 FY'06 FY'06 FY'06 FY'07 FY'07 Pro forma Restated Pro forma Restated ‚£'m Margin % ‚£'m ‚£'m % % Nordics 76.7 9.2 68.0 16.9 12.8 353.8 UK 30.5 4.6 77.8 77.8 (60.8) (60.8) France 40.8 6.9 46.2 46.8 (11.7) (12.8) Netherlands 42.9 8.9 44.4 44.2 (3.4) (2.9) Germany 8.1 4.5 (1.4) (1.4) n/a n/a International 8.6 2.7 19.5 19.1 (55.9) (55.0) Total continuing 207.6 6.8 254.5 203.4 (18.4) 2.1 Adjusted operating margin for the year of 6.8% was disappointing compared tothe pro forma 8.5% achieved in 2006, with second half adjusted operating marginat 7.6% (2006: 9.8%). The most significant impact on group margin was in theUK business, reflecting charges in respect of a project cost overrun and weakerperformance in the commercial sectors. The cost of management changes affectedthe margin in France despite a strong operational performance. The impact ofprice reductions coupled with the timing of cost savings in the Edinforbusiness in Portugal reduced margins in the International segment. Morepositively, margins in the Nordics increased from 8.6% to 9.2% as acquisitioncost savings of ‚£5 million were achieved. The business in Germany wasprofitable through the year, building on a well executed integration programmein 2006. Additionally, as we closed 2007, we have taken a more conservative near-termview of a number of programmes across the group and have resolved alongstanding UK customer dispute. As a result of these actions, 2007 operatingprofit was lower than our previous expectations in the UK and the Netherlands. At a group level, the combined one-off impact for the year of these provisionsand charges was a reduction of around 0.8 per cent of margin.
Review of continuing operations by geography
Nordics Growth Growth FY'07 on FY'07 onRevenue by market sector FY'06 FY'06 FY'06 FY'06 FY'07 Pro forma Restated Pro forma Restated ‚£'m ‚£'m ‚£'m % % Public Sector 252.3 246.7 55.8 2.3 352.2 Industry, Distribution and 382.4 335.5 81.9 14.0 366.9Transport Energy and Utilities 50.1 50.5 13.0 (0.8) 285.4 Financial Services 86.8 76.4 20.2 13.6 329.7 Telecoms and Media 65.3 81.0 19.6 (19.4) 233.2 Total 836.9 790.1 190.5 5.9 339.3 Outsourcing (%) 33 - 31
Adjusted operating profit (‚£'m) 76.7 68.0 16.9
Adjusted operating margin (%) 9.2 8.6 8.9 Revenue was up 6% on a pro forma basis to ‚£836.9 million, with fourth quartergrowth of 5% on a pro forma basis when compared to a strong quarter in 2006. Adjusted operating profit was up 13% on a pro forma basis to ‚£76.7 million(2006: ‚£68.0 million), giving an adjusted operating margin of 9.2%. IDT grew well ahead of the market, with good growth at customers such as Volvoand Schenker where we secured contract renewals in 2007. The Public Sectorbusiness grew in line with the market, with work in the defence sectorcontinuing to be an important contributor. In Financial Services, growth wasdriven by good customer demand and higher volumes of work with both existingand new customers as we began to leverage the skills of the wider group intothe Nordics. E&U was broadly stable while lower revenue in the Telecoms andMedia business was the result of anticipated lower license sales within billingsolutions. Utilisation remained good across the Nordics and subcontracting levels remainstable. We continue to see good demand for ERP, especially SAP. Appetite forglobal delivery is on the increase. Initial internal product development workhas been transferred to India and use of offshore delivery on customercontracts has increased through the year in both Finland and Sweden. Through a year of integration, we saw almost no attrition at senior levels. The improvement in adjusted operating profit was largely due to anticipatedintegration cost savings of ‚£5 million as we transitioned some productdevelopment work offshore, closed the Logica office in the Nordics and reducedsome central overheads. We continue to expect an incremental ‚£8 million ofcost savings in 2008, with annualised cost savings of ‚£15 million by 2009.
Excluding the impact of integration cost savings, margin was broadly unchanged. Although improved utilisation and increasing use of offshore resource has had a positive impact on margin, managing higher wage inflation in the context of tough recruitment markets remains the key challenge to increasing margin further in the region.
UK Growth Growth FY'07 on FY'07 onRevenue by market sector FY'06 FY'06 FY'06 FY'06 FY'07 Pro forma Restated Pro forma Restated ‚£'m ‚£'m ‚£'m % % Public Sector 372.0 337.1 337.1 10.4 10.4 Industry, Distribution and 89.3 136.7 136.7 (34.7) (34.7)Transport Energy and Utilities 104.7 104.7 104.7 - - Financial Services 60.6 85.7 85.7 (29.3) (29.3) Telecoms and Media 35.9 54.2 54.2 (33.8) (33.8) Total 662.5 718.4 718.4 (7.8) (7.8) Outsourcing (%) 39 40 40
Adjusted operating profit (‚£'m) 30.5 77.8 77.8
Adjusted operating margin (%) 4.6 10.8 10.8 Revenue was down 8% on a pro forma basis to ‚£662.5 million. The fourth quarterdecline of 7% was similar to that experienced in the third quarter. Adjustedoperating profit for the year was ‚£30.5 million, compared to a ‚£77.8 millionadjusted operating profit in 2006. The largest contributor to the decrease in adjusted operating profit was thepreviously disclosed provision on a long-term contract taken in the firsthalf. We have also resolved a longstanding UK customer dispute. These costs,added to a more conservative view taken on elements of some UK contracts,resulted in a ‚£20 million impact on adjusted operating profit for the year. Absent these charges, adjusted operating margin for the year would have been7.6%.
Public Sector revenue was up 10% and represented 56% of UK revenue in 2007. Second half revenue growth was particularly strong at 14%, as we deliveredunder contracts with the Crown Prosecution Service, the Ministry of Justice,and to the NHS Connecting for Health Programme through arrangements with BT. Space and Defence continued to account for around a third of UK Public Sectorrevenue. In 2007, we delivered further software for the UK's next generationmilitary satellite communications system, Skynet 5, and continued to deliverunder Ministry of Defence contracts such as the Defence InformationInfrastructure (DII) programme. Outside the Public Sector, Energy and Utilities revenue was stable year onyear. We made significant improvements in this business through the year,resulting in revenue up 8% in the second half. The IDT sector continued to beaffected through the year by the conclusion of a major transport contract in2006. However, our new contract with BAA and the win with Taylor Wimpey bookedat the end of 2007 have contributed to a strengthening order backlog. Acrossthe commercial sectors, our exposure to a smaller number of clients hascontributed to weakness through the year, with M&A activity in FinancialServices having an impact on consulting revenue in 2007. Our focus will remainon reinvigorating the sales capability across the UK business through 2008. Book to bill for the year was 0.97:1. While we enter 2008 with a good pipelinein Energy and Utilities and a good order backlog in the Public Sector, weexpect slower growth in the Public Sector than in 2007. This should be offsetby improvements in parts of the commercial sector with a gradual return to amodest level of growth as we go through 2008. With the majority of the ‚£20 million of costs incurred in the first half,margin improved to 8.0% (2006: 12.6%) in the second half. Margins alsobenefited from some cost savings achieved as a result of overhead reductions inthe first half. Utilisation was lower throughout the year as a result ofreduced volume of business in the commercial sectors. We took action to reducethe level of subcontractors through the year although they continue to bedeployed in specialist roles where required. France Growth Growth FY'07 on FY'07 onRevenue by market sector FY'06 FY'06 FY'06 FY'06 FY'07 Pro forma Restated Pro forma Restated ‚£'m ‚£'m ‚£'m % % Public Sector 64.1 61.2 60.8 4.7 5.4 Industry, Distribution and 221.4 206.6 238.2 7.2 (7.1)Transport Energy and Utilities 86.2 66.8 66.4 29.0 29.8 Financial Services 161.3 146.0 145.0 10.5 11.2 Telecoms and Media 55.2 49.9 49.6 10.6 11.3 Total 588.2 530.5 560.0 10.9 5.0 Outsourcing (%) 32 30 30
Adjusted operating profit (‚£'m) 40.8 46.2 46.8
Adjusted operating margin (%) 6.9 8.7 8.4 Revenue was up 11% on a pro forma basis to ‚£588.2 million, with strong fourthquarter growth. Adjusted operating profit was ‚£40.8 million (after one-offcosts related to management changes), compared to ‚£46.2 million on a pro formabasis in 2006.
Revenue grew across all market sectors, with Public Sector growth at 5% in linewith the market and growth in all other sectors above 7%. The fastest growingsector through 2007 continued to be E&U, as we deployed a major programme forEDF. Financial Services was also up on the back of the cross-selling contractsigned in 2006. We expect slower growth in Energy and Utilities and FinancialServices to be balanced against stronger public sector growth in the absence ofelection activity in 2008. Half of our major accounts posted growth of more than 10%, with EDF, a numberof financial services institutions and our project with the Ministry of Defencedriving growth. Roll-out of our contract for Carrefour was also a contributor.
Management changes made in mid 2007 did not hamper recruitment efforts. We recruited successfully in the French market, exceeding internal targets.
Excluding the one-off costs related to management changes, adjusted operatingmargin was 7.8% (2006 pro forma: 8.7%) with some second half dilution comparedto 2006 as a result of higher use of subcontractors and a more conservativeview on costs related to some contracts where we intend to accelerate theoffshore transition. Doubling of our Moroccan headcount through 2007 reflectsan increased demand for a blended delivery model among French clients, which weexpect to be a positive contributor to margin in 2008. Netherlands Growth Growth FY'07 on FY'07 onRevenue by market sector FY'06 FY'06 FY'06 FY'06 FY'07 Pro forma Restated Pro forma Restated ‚£'m ‚£'m ‚£'m % % Public Sector 145.3 122.4 121.9 18.7 19.2 Industry, Distribution and 105.7 102.7 103.0 2.9 2.6Transport Energy and Utilities 50.9 49.7 49.4 2.4 3.0 Financial Services 155.8 148.2 147.3 5.1 5.8 Telecoms and Media 27.0 26.2 26.0 3.1 3.8 Total 484.7 449.2 447.6 7.9 8.3 Outsourcing (%) 18 13 13
Adjusted operating profit (‚£'m) 42.9 44.4 44.2
Adjusted operating margin (%) 8.9 9.9 9.9 Revenue was up 8% to ‚£484.7 million, marking growth ahead of the market for thethird consecutive year. Growth slowed in the fourth quarter in line with ourexpectations. Book to bill for the year was 1.04:1. Adjusted operating profitwas ‚£42.9 million, giving an adjusted operating margin of 8.9%. For the year, revenue growth was driven by a strong Public Sector, with revenueup 19%. Financial Services revenue was broadly stable in the second half whencompared to last year, leading to full year revenue growth of 5%, while Energyand Utilities saw stronger revenue growth in the second half. In IDT, revenuewas stable. In the Financial Services and IDT areas, customers are adopting higher levelsof offshore resource to ensure they remain cost competitive globally which hasdriven a doubling of the use of our blended delivery model in 2007. While weexpect a continued increase in volumes of work, this is likely to contribute tolower revenue growth rates in the Dutch market in 2008. Although we continued to recruit successfully in the Netherlands, the labourmarket remained very competitive. Higher prices than in 2006 combined withincreased use of subcontractors were contributors to increased costs throughthe year. We also recognised a level of increased cost relative to one longterm contract but continue to see opportunities in our Dutch contracts totransition more work offshore in 2008. The combined impact of these factorswas a reduction in operating margin when compared to 2006. Germany Growth Growth FY'07 on FY'07 onRevenue by market sector FY'06 FY'06 FY'06 FY'06 FY'07 Pro forma Restated Pro forma Restated ‚£'m ‚£'m ‚£'m % % Public Sector 6.1 12.2 12.1 (50.0) (49.6) Industry, Distribution and 72.3 68.8 67.5 5.1 7.1Transport Energy and Utilities 25.6 25.1 24.9 2.0 2.8 Financial Services 53.5 33.6 39.5 59.2 35.4 Telecoms and Media 22.1 24.7 24.6 (10.5) (10.2) Total 179.6 164.4 168.6 9.2 6.5 Outsourcing (%) 16 20 20
Adjusted operating profit (‚£'m) 8.1 (1.4) (1.4) Adjusted operating margin (%) 4.5 (0.9) (0.8)
Revenue was up 9 % at ‚£179.6 million, driven by particularly strong fourth quarter growth at 13%. Adjusted operating profit was ‚£8.1 million, resulting in an adjusted operating margin of 4.5%. This compares to a loss of ‚£1.4 million in 2006.
Revenue growth was driven by a strong performance in the Financial Servicessector as we deployed a program for a major international bank and riskmanagement solutions for a number of customers in the sector. IDT was up 5% asa result of consulting and services projects undertaken for InBev as well asclients in the automotive sector. The business in Germany achieved profitability through the year, building on awell executed integration programme in 2006 and driven by revenue growth in
thebusiness in 2007. International Growth Growth FY'07 on FY'07 onRevenue by market sector FY'06 FY'06 FY'06 FY'06 FY'07 Pro forma Restated Pro forma Restated ‚£'m ‚£'m ‚£'m % % Public Sector 33.2 31.1 31.6 6.8 5.1 Industry, Distribution and 50.1 35.5 36.6 41.1 36.9Transport Energy and Utilities 164.7 166.2 169.1 (0.9) (2.6) Financial Services 46.7 45.8 47.3 2.0 (1.3) Telecoms and Media 26.6 49.5 51.0 (46.3) (47.8) Total 321.3 328.1 335.6 (2.1) (4.3) Outsourcing (%) 37 34 33
Adjusted operating profit (‚£'m) 8.6 19.5 19.1 Adjusted operating margin (%) 2.7 5.9 5.7
Revenue for the year was down 2% to ‚£321.3 million. The fourth quarter decline of 5% was largely attributable to a major Telecoms and Media contract with Natrindo in Asia which completed last year. Book to bill for the year was 0.90:1.
Adjusted operating profit was ‚£8.6 million, giving an adjusted operating marginof 2.7%. The lower operating profit was largely due to costs related toimproving the efficiency of our business in Portugal, with headcount reduced byaround 10% over the course of 2007. The phasing of the cost reduction coupledwith planned price reductions reduced margins in the International segmentdespite improvements in profitability in the US and Australian businesses. Edinfor revenue continued to account for around a third of Internationalrevenue. It also remained the largest contributor to Energy and Utilitiesrevenue in the region. While EDP remains Edinfor's major client, customers inthe Portuguese water utilities market continued to represent around a fifth ofrevenue. We also continue to see good opportunities in Brazil where ourrevenue was up in 2007, mainly under our contract with natural gas distributioncompany Comgƒ¡s.
Growth in the IDT business continued to be driven by roll-out of the InBev contract while Australia and the Middle East continued to see good Public Sector demand.
Creation of new Outsourcing Services division
In 2007, revenue from outsourcing was ‚£959 million (2006: ‚£708 million), representing 31% of group revenue.
We have recently established Outsourcing Services as a new division, whichdevelops our existing outsourcing model, and have been working internally toensure the right organisation is in place to take this business forward. Thenew model will become operational in key European geographies from Q1 2008 andwill be in place across the whole organisation by 2009. European customers are increasingly demanding a blended delivery model. Thenew division will take end-to-end responsibility for outsourcing services,ensuring that customers have access to the most efficient and cost effectiveblend of onshore, nearshore and offshore support. It will provide outsourcingsales and design specialists to all Logica's customers via our localorganisations. It will accelerate the standardisation of tools and processesand drive efficiencies across the organisation.
The division will incorporate around 9,000 Logica employees working today in our onshore, nearshore and offshore centres. This includes around 2,000 employees in our infrastructure management centres in Sweden.
We expect our largest offshore centres in India and the Philippines to continueto grow within this division. They are already an important element ofdelivering outsourcing services to customers. In conjunction with our plan tocontinue to strengthen our Indian presence, we are appointing a new CEO for
ourbusiness in India. We also expect growth in our onshore centres as well as in nearshore centreslike Morocco and the Czech and Slovak Republics, which allows us to meet thevarying language and cultural needs of our customers.
We expect to report performance metrics for this new division from the second half of 2008.
EmployeesAt the end of 2007, we had 38,740 employees (2006, restated for the disposal ofTelecoms Products: 38,789). Over the course of the year, we recruited over8,500 new employees. We met or exceeded internal recruitment targets in mostof our markets.Employee churn through annualised voluntary attrition was broadly stable onlast year at around 16% and was in line with the market. The other significantmovement in 2007 was the exit of approximately 1,100 employees as part of thedisposal of the Caran business in the Nordics at the beginning of June. While selective price increases remained possible through the year, wageinflation in our major geographies continued to impact our ability to improvemargins further. While UK utilisation has been impacted by weakness in thecommercial sectors, utilisation in our other major geographies remains good. Financial itemsAmortisation of intangible assets from acquisitions was ‚£74.7 million (2006: ‚£37.6 million), with the increase being mainly attributable to intangible assetsacquired as part of the WM-data acquisition. The net exceptional items of ‚£23.2 million (2006: ‚£23.9 million) include a lossof ‚£9.7 million related to non-core disposals completed during the year(excluding the Telecoms Products disposal which is reported as a discontinuedoperation). The ‚£9.7 million loss includes a ‚£2.6 million impairment loss onbuildings in Portugal (occupied by the Copidata activity prior to itsdisposal). Also included are ‚£13.5 million of restructuring costs associatedwith offshoring activities and IT infrastructure as part of the WM-dataintegration. A further ‚£8.3 million of costs are expected to be incurred in2008 in respect of the WM-data integration.
Finance costs were broadly unchanged in 2007. Higher amortisation of intangibles compared to 2006 and lower adjusted operating profit resulted in a profit before tax of ‚£84.1 million (2006: ‚£116.6 million).
Adjusted basic earnings per share from continuing operations were 10.2p (2006: 10.4p) on a weighted average number of shares of 1,494.6 million. Basic earnings per share from continuing operations, which included higher amortisation of acquisition-related intangibles than last year, were 5.4p (2006: 6.4p).
The fourth quarter showed good operational management of working capital acrossthe group. Cash generated from continuing operations was ‚£232.4 million (2006:‚£209.5 million). The net cash inflow from trading operations was ‚£261.0million, giving a cash conversion of 126% (2006: 119%). Profit from discontinued operations for the year was ‚£89.4 million (2006: ‚£3.7million), as a result of the disposal of the Telecoms Products business. Thisresulted in a net profit for the group of ‚£168.1 million (2006: ‚£89.1 million).
Group net debt at 31 December 2007 was ‚£483.2 million, compared to ‚£399.1 million at 30 June 2007. This increase is largely attributable to a net outflow from the ‚£130 million share buyback completed in November 2007.
Taxation
Based on the progress of the legal structure integration following theacquisitions in recent years, we have been able to accelerate the benefit ofhistoric tax losses in 2007. The effective tax rate on continuing operationsfor the year, before share of post-tax profits from associates, exceptionalitems and amortisation of intangible assets initially recognised onacquisition, was 17.6% (2006: 25.4%). The effective tax rate for 2008 isexpected to be around 23%. The total tax charge for the year ended 31 December 2007 was ‚£5.4 million(2006: ‚£31.2 million) of which a tax credit of ‚£26.4 million (2006: ‚£14.0million credit) relates to exceptional items and amortisation of intangibleassets initially recognised on acquisition. The remaining decrease is mainlydue to the use of previously unrecognised tax losses brought forward.
Minority interests
At the time of the WM-data transaction, Logica acquired 95.33% of the company'sissued share capital. The compulsory redemption process to acquire theremaining 4.67% from WM-data minority shareholders is progressing. Wecurrently expect the redemption process to complete by the fourth quarter of2008. Acquisitions and disposals
In addition to the acquisition of Siemens Business Systems AS in Norway in thefirst half of the year, the group made the following small acquisitions during2007:
the remaining 63.7% of Medici Data Oy, a Finnish company specialising in patient care applications and information management services for the health care sector
the remaining 55% interest in Internet Telecom Payment Solutions AB, a Swedish company providing billing solutions and services for the telecoms sector
Karttakone Oy, a Finnish company providing digital and paper-based mapping products.
The provisional fair value of the identifiable assets and liabilities acquired in all acquisitions in the year was ‚£15.1 million. Total cash due on these acquisitions was ‚£23.6 million.
In addition to the disposals of the Telecoms Products and Caran businesses disclosed in the first half of 2007, the group completed the sale of the following non-core businesses during 2007:
an element of the payroll business in the Netherlands which provided solutions for the SME and local government market;
the Copidata integrated graphic services business in Portugal;
the business providing staff augmentation and hosting services to the automotive industry in the United States;
the former WM-data subsidiary operating in Germany, WM-data Deutschland GmbH;
the subsidiary operating the group's IT services business in Austria, LogicaCMG GmbH;
small finance BPO businesses in Norway and Sweden; and
a part of the IT services business in Denmark, providing services and products to tax authorities around the world.
The aggregate net assets of these businesses, which are not individually significant, at their date of disposal was ‚£17.7 million. The loss on disposal was ‚£9.9 million. Net cash inflow arising on disposal was ‚£12.8 million.
The total consideration for the sale of non-core businesses (excluding TelecomsProducts and Caran) was ‚£15.6 million, of which ‚£15.2 million was received incash during the year and ‚£0.4 million is receivable during first half of 2008.
Since the end of 2007, Logica has also acquired a small BPO business in Sweden and has disposed of its print and mail operations in Bridgend, Wales.
Balance sheet items
The group's policy is to maintain adequate headroom to meet its foreseeablefinancing requirements. With our ¢â€š¬303 million convertible bonds due to beredeemed in September 2008, we have ensured that we have sufficient capacity torepay this at the redemption date. In November 2007, we extended the ‚£150million tranche of our existing bank facilities (which was due to mature inAugust 2008). This amendment to the loan grants the option to extend untilNovember 2010. The other commercial terms of the loan, which is provided by agroup of eight of the company's relationship banks, remain unchanged.
Logica's other principal bank facilities are a ¢â€š¬348 million term loan and a ‚£ 330 million multi-currency revolving credit facility, which is largely undrawn. Both of these fully committed facilities mature in September 2010.
These facilities provide us with adequate headroom to repay our convertible debt at the redemption date, while remaining well within our banking covenants.
Events after the balance sheet date
At the time of the announcement of the Telecoms Products disposal in early2007, we earmarked a portion of the proceeds to be used to buy out remainingminority interests in Edinfor and WM-data. EDP has a put option in respect ofits remaining 40% interest in Edinfor. This became exercisable on 21 April2007. On 19 February 2008, we received formal notification that EDP intendedto exercise this option and we expect to complete the payment for the remaining40% of the business in March 2008.
Dividend
The directors have proposed a final dividend of 3.5 pence to be paid on 15 May2008 to eligible shareholders on the register at the close of business on 18April 2008. This year's proposed total dividend of 5.8 pence represents a
4%increase on last year. Next financial calendar dates
Logica's next scheduled communications to the market are:
Wednesday 14 May 2008 Q1 Interim Management Statement and AGM
Thursday 14 August 2008 2008 Interim results
Wednesday 5 November 2008 Q3 Interim Management Statement
Consolidated income statementFor the year ended 31 December 2007 Restated* 2007 2006 Note ‚£'m ‚£'m Continuing operations: Revenue 2 3,073.2 2,420.7 Net operating costs (2,963.5) (2,278.8) Operating profit 109.7 141.9 Analysed as:
Operating profit before exceptional items 132.9
165.8 Exceptional items 3 (23.2) (23.9) Operating profit 2 109.7 141.9 Finance costs (37.8) (34.3) Finance income 11.0 8.7
Share of post-tax profits from associates 1.2
0.3 Profit before tax 84.1 116.6 Taxation 6 (5.4) (31.2)
Profit for the year from continuing operations 78.7
85.4 Discontinued operation:
Profit from discontinued operation 7 89.4
3.7 Net profit for the year 168.1 89.1 Attributable to: Equity holders of the parent 169.9 82.0 Minority interests (1.8) 7.1 168.1 89.1
Earnings per share from continuing operations p / share
p / share - Basic 9 5.4 6.4 - Diluted 9 5.3 6.3
Earnings per share from total operations
- Basic 9 11.4 6.7 - Diluted 9 11.2 6.6
* Restated as described further in note 7.
Consolidated statement of recognised income and expense For the year ended 31 December 2007
2007 2006 ‚£'m ‚£'m Exchange differences on translation of foreign operations
97.4 (4.1)
Exchange differences recycled on disposal of foreign operations 5.1 -
Cash flow hedges transferred to income statement on settlement -
(2.0)
Actuarial gains on defined benefit plans
3.6 17.5
Tax on items taken directly to equity -
(3.9)
Net income recognised directly in equity 106.1 7.5 Profit for the year 168.1 89.1 Total recognised income and expense for the year 274.2 96.6 Attributable to: Equity holders of the parent 274.0 89.4 Minority interests 0.2 7.2 274.2 96.6
Details of dividends paid and proposed are provided in note 8.
Consolidated balance sheet31 December 2007 2007 2006 Note ‚£'m ‚£'m Non-current assets Goodwill 1,604.0 1,552.1 Other intangible assets 358.0 415.1
Property, plant and equipment 132.1
136.6 Investments in associates 2.4 6.0 Financial assets 11.0 10.1 Retirement benefit assets 12.0 18.7 Deferred tax assets 54.5 50.6 2,174.0 2,189.2 Current assets Inventories 1.4 2.9 Trade and other receivables 1,021.2 1,070.2 Current tax assets 40.5 31.2 Cash and cash equivalents 108.7 177.3 1,171.8 1,281.6 Current liabilities Convertible debt (220.0) (202.4) Other borrowings (97.2) (33.1) Trade and other payables (868.2) (886.4) Current tax liabilities (56.1) (32.3) Provisions (9.1) (20.8) (1,250.6) (1,175.0)
Net current (liabilities)/assets (78.8)
106.6
Total assets less current liabilities 2,095.2 2,295.8 Non-current liabilities Borrowings (274.7) (498.9)
Retirement benefit obligations (50.6)
(64.1) Deferred tax liabilities (125.0) (164.4) Provisions (18.9) (13.2)
Other non-current liabilities (0.7)
(0.8) (469.9) (741.4) Net assets 1,625.3 1,554.4 Equity Share capital 10 145.8 153.6 Share premium account 11 1,098.9 1,097.0 Other reserves 352.3 274.4 Total shareholders' equity 1,597.0 1,525.0 Minority interests 28.3 29.4 Total equity 1,625.3 1,554.4 Consolidated cash flow statementFor the year ended 31 December 2007 Restated* 2007 2006 Note ‚£'m ‚£'m
Cash flows from continuing operating activities Net cash inflow from trading operations 261.0
242.5
Cash outflow related to restructuring and integration (28.6)
(33.0) activities
Cash generated from continuing operations 12 232.4
209.5 Finance costs paid (40.2) (26.3) Income tax paid (45.8) (31.5)
Net cash inflow from continuing operating activities 146.4
151.7
Net cash inflow/(outflow) from discontinued operating 7.0
(1.3) activities
Cash flows from continuing investing activities
Finance income received 7.0 5.1
Dividends received from associates 1.0
-
Proceeds on disposal of property, plant and equipment 2.2
2.2
Purchases of property, plant and equipment (35.3)
(28.2)
Expenditure on intangible assets (13.0)
(17.1)
Purchase of minority interests (2.2)
-
Deferred consideration and acquisition of subsidiaries, net (34.2)
(398.3) of cash acquired
Disposal of subsidiaries and other businesses, net of cash 42.0
1.9 disposed
Disposal of discontinued operation, net of cash disposed 213.2
-
Net cash inflow/(outflow) from continuing investing 180.7
(434.4) activities
Net cash outflow from discontinued investing activities -
(5.5)
Cash flows from continuing financing activities Proceeds from issue of equity shares 2.5
3.4
Payment for share issue costs -
(5.4) Purchase of own shares (130.8) -
Proceeds from transfer of shares by ESOP trust 0.8
- Proceeds from bank borrowings 34.5 480.6 Repayments of bank borrowings (204.2) (208.0)
Repayments of finance lease principal (4.7)
(2.1)
Repayments of borrowings assumed in acquisitions -
(3.8)
Proceeds from other borrowings -
0.4
Repayments of other borrowings -
(0.4)
Payments on forward contracts designated as a net investment (6.3)
- hedge
Dividends paid to the company's shareholders (85.9)
(61.1)
Dividends paid to minority interests (0.4)
(1.8)
Net cash (outflow)/inflow from continuing financing (394.5)
201.8 activities
Net decrease in cash, cash equivalents and bank overdrafts (60.4)
(87.7)
Cash, cash equivalents and bank overdrafts at the beginning 13 150.9
245.3 of the year
Net decrease in cash, cash equivalents and bank overdrafts 13 (60.4)
(87.7)
Effect of foreign exchange rates 13 9.1
(6.7)
Cash, cash equivalents and bank overdrafts at the end of the 99.6
150.9 year
* Restated as described further in note 12.
Accounting policies and basis of preparation
Basis of preparation
The financial information in this preliminary announcement has been extractedfrom the group's consolidated financial statements for the year ended 31December 2007. The group's consolidated financial statements have beenprepared in accordance with International Financial Reporting Standards('IFRSs') as adopted by the European Union ('EU') and those parts of theCompanies Act 1985 ('the Act') that remain applicable to companies reportingunder IFRS. The consolidated financial statements have been prepared under the historicalcost convention with the exception of certain items which are measured at fairvalue.
This preliminary announcement was approved by the Board of directors on 26February 2008. The financial information in this preliminary announcement doesnot constitute the statutory accounts of LogicaCMG plc ('the company') withinthe meaning of section 240 of the Act. The statutory accounts of the company for the year ended 31 December 2007,which include the group's consolidated financial statements for that year, wereunaudited at the date of this announcement. The auditors' report on thoseaccounts is expected to be signed following approval by the Board of Directorson 20 March 2008 and subsequently delivered to the Registrar of Companies afterthe Annual General Meeting on 14 May 2008. The statutory accounts for the yearended 31 December 2006, which were prepared under IFRS, have been filed withthe Registrar of Companies. The auditors' report on those accounts wasunqualified and did not contain a statement under section 237(2) and 237(3)
ofthe Act.
Adoption of new and revised International Financial Reporting Standards
The accounting policies adopted in these consolidated financial statements areconsistent with those of the annual financial statements for the year ended 31December 2006, except that the following standards, amendments to andinterpretations of published standards were adopted during the year:
IFRIC 7, 'Applying the restatement approach under IAS 29'.
IFRIC 8, 'Scope of IFRS 2'.
IFRIC 9, 'Reassessment of Embedded Derivatives'.
IFRIC 10, 'Interim Financial Reporting and Impairment'.
IFRS 7, 'Financial Instruments: Disclosures' and IAS 1, 'Amendments to capitaldisclosures'. The full IFRS 7 disclosures, including the sensitivity analysisto market risk and capital disclosures required by the amendment of IAS 1, aregiven in the annual financial statements. IAS 1 (revised) is still subject toendorsement by the European Union.
IFRS 4, 'Insurance contracts'. This interpretation was not relevant to the group.
Except for the additional disclosure under IFRS 7, the above standards, amendments to and interpretation of published standards had no material impact on the consolidated financial statements.
The following new standards, amendments to standards and interpretations have been issued but are not effective for 2007 and have not been early adopted:
IFRIC 11, 'IFRS 2 - Group and treasury share transactions', effective for annual periods beginning on or after 1 March 2007. Management do not expect this interpretation to have a significant impact on the consolidated financial statements.
IFRIC 12, 'Service concession arrangements', effective for annual periods beginning on or after 1 January 2008. Management do not expect this interpretation to be relevant for the group. The amendment to the standard is still subject to endorsement by the European Union.
IFRIC 13, 'Customer loyalty programmes', effective for annual periods beginningon or after 1 July 2008. Management do not expect this interpretation to berelevant to the group. The amendment to the standard is still subject toendorsement by the European Union.IFRIC 14,'IAS 19 - The limit of a defined benefit asset, minimum fundingrequirements and their interaction', effective for annual periods beginning onor after 1 January 2009. Management do not expect the interpretation to have asignificant impact on the consolidated financial statements. The amendment tothe standard is still subject to endorsement by the European Union.
IAS 1, 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. No significant impact on the consolidated financial statements is expected, except for additional disclosure.
IAS 23 (Amendment), 'Borrowing costs', effective for annual periods beginning on or after 1 January 2009. Management do not expect the interpretation to have a significant impact on the consolidated financial statements. The amendment to the standard is still subject to endorsement by the European Union.
IAS 27 (Revised), 'Consolidated and Separate Financial Statements', must beapplied prospectively by the group from 1 January 2010. The revised standardrequires that acquisitions and disposals that do not result in a change ofcontrol are accounted for within equity. Any difference between the change inthe minority interest and the fair value of the consideration paid or receivedis recognised directly in equity and attributed to the owners of the parent. The revised standard is still subject to endorsement by the European Union.IFRS 2 (Amendment), 'Share-based payment', effective for annual periodbeginning on or after 1 January 2009. The amendment to the standard limitsvesting conditions to service conditions and performance conditions. Theamendment also specifies that all cancellations, whether by the entity or byother parties, should receive the same accounting treatment, i.e. accelerationof the expense based on the grant date fair value. No significant impact onthe consolidated financial statements is expected. The amendment to thestandard is still subject to endorsement by the European Union. IFRS 3 (Revised), 'Business combinations', must be applied prospectively by thegroup from 1 January 2010. The revised standard requires that allacquisition-related costs are to be expensed to the income statement in theperiod incurred. Furthermore, purchase accounting only applies at the pointwhen control is achieved. This has a number of implications:where the acquirer has a pre-existing equity interest in the entity acquiredand increases its equity interest such that it achieves control, it mustre-measure its previously-held equity interest to fair value as at the date ofobtaining control and recognise any resulting gain or loss in the incomestatement.
once control is achieved all other increases and decreases in ownership interest are treated as transactions among equity holders and reported directly within equity. Goodwill is not re-measured or adjusted.
The revised standard is still subject to endorsement by the European Union.IFRS 8, 'Operating segments', effective for annual periods beginning on orafter 1 January 2009. The main impact would be that operating segments wouldbe identified, and segment information provided, on the same basis as is usedinternally for evaluating segment performance and allocating resources. Reconciliations would be provided of total segment revenues, profit, assets,liabilities and other amounts to the corresponding amounts in the consolidatedfinancial statements, together with an explanation of any differences inmeasurement basis. All the IFRSs, IFRIC interpretations and amendments to existing standards hadbeen adopted by the EU at the date of approval of these consolidated financialstatements, unless otherwise indicated. Except as discussed above, the directors anticipate that the future adoption ofthose standards, interpretations and amendments listed above that have not beenadopted early will not have a material impact on the consolidated financial
statements. Foreign currenciesThe most important foreign currencies for the group are the euro and theSwedish Krona. The relevant exchange rates to pounds sterling were: 2007 2006 Average Closing Average Closing ‚£1 = ¢â€š¬ 1.46 1.36 1.47 1.48 ‚£1 = SEK 13.51 12.87 13.57 13.39 Segment informationLogica was organised into six geographical segments based on the location ofassets. These segments are the group's primary reporting format for segmentinformation as they represent the dominant source and the nature of the group'srisks and returns following the disposal of the Telecoms Products business.
Segment revenue and profit after tax under the primary reporting format are disclosed in the table below.
Revenue Profit Restated 2007 2006 2007 2006 ‚£'m ‚£'m ‚£'m ‚£'m Nordics 836.9 190.5 13.4 4.8 United Kingdom 662.5 718.4 30.5 86.8 France 588.2 560.0 20.2 13.0 Netherlands 484.7 447.6 47.3 44.2 Germany 179.6 168.6 5.4 (19.5) International 321.3 335.6 (7.1) 12.6
Revenue and operating profit 3,073.2 2,420.7 109.7
141.9 Finance costs (37.8) (34.3) Finance income 11.0 8.7
Share of post-tax profits from associates 1.2
0.3 Taxation (5.4) (31.2)
Profit after tax from continued operations 78.7
85.4 Discontinued operation 89.4 3.7 Profit after tax 168.1 89.1 The share of post-tax profits from associates in the years ended 31 December2007 and 2006 was attributable to the Nordics geographical segment. Inter-segment revenue for the International category was ‚£40.4 million (2006: ‚£30.7 million). Inter-segment revenue for the other categories was notmaterial. Exceptional items
The exceptional items recognised within operating profit were as follows:
2007 2006 ‚£'m ‚£'m Restructuring and integration costs (13.5) (32.9) Disposal of businesses (9.7) - Reduction in retirement benefit obligation due to harmonisation of - 9.0 plan rules (23.2) (23.9)
The group incurred a charge of ‚£13.5 million relating to the restructuring of the business in the Nordics following the acquisition of WM-data AB. The restructuring comprised costs associated with offshoring activities and IT infrastructure.
During 2007, the group incurred a loss on the disposal of several businesses of‚£9.7 million. An impairment loss of ‚£2.6 million was included in the loss onthe disposal of businesses. The impairment loss related to buildingspreviously occupied by the graphic services business in Portugal prior to thedisposal of this business. The disposals are described further in note 14. In 2006, the group incurred a charge of ‚£32.9 million mainly relating to therestructuring of the businesses in France and Germany following the acquisitionof Unilog and the closure of a building in the United States of America. Therestructuring comprised a reduction in headcount, vacated property and othermeasures to reduce the cost base. The group also harmonised the cashcommutation rates used in the CMG UK pension scheme across the entire planmembership. The effect of applying the new cash commutation rates was areduction in the defined benefit liability of ‚£9.0 million, which wasrecognised in full as an exceptional item.
Adjusted operating profit
Adjusted operating profit excludes the results of discontinued operations,exceptional items and amortisation of intangible assets initially recognised atfair value in a business combination, whenever such items occur. Adjustedoperating profit is not defined under IFRSs and has been shown as the directorsconsider this to be helpful for a better understanding of the performance ofthe group's underlying business. It may not be comparable with similarlytitled profit measurements reported by other companies and is not intended tobe a substitute for, or superior to, IFRSs measures of profit. Restated 2007 2006 ‚£'m ‚£'m Operating profit 109.7 141.9 Exceptional items 23.2 23.9 Amortisation of intangible assets initially recognised on 74.7 37.6 acquisition Adjusted operating profit 207.6 203.4
Adjusted operating profit analysis per geographical segment was as follows:
2007 Adjusted Operating Exceptionall Amortisation operating profit items of profit intangibles* ‚£'m ‚£'m ‚£'m ‚£'m Nordics 13.4 13.2 50.1 76.7 United 30.5 - - 30.5Kingdom France 20.2 - 20.6 40.8 Netherlands 47.3 (4.4) - 42.9 Germany 5.4 0.1 2.6 8.1 International (7.1) 14.3 1.4 8.6 109.7 23.2 74.7 207.6
* Amortisation of intangible assets initially recognised on acquisition.
2006 Operating Exceptionall Amortisation Adjusted profit items of intangibles* operating profit ‚£'m ‚£'m ‚£'m ‚£'m Nordics 4.8 1.1 11.0 16.9 United Kingdom 86.8 (9.0) - 77.8 France 13.0 11.2 22.6 46.8 Netherlands 44.2 - - 44.2 Germany (19.5) 15.5 2.6 (1.4) International 12.6 5.1 1.4 19.1 141.9 23.9 37.6 203.4
* Amortisation of intangible assets initially recognised on acquisition.
Employees Year end Average 2007 2006 2007 2006 Number Number Number Number Nordics 9,420 10,076 9,837 2,567 United Kingdom 5,655 6,073 5,797 6,083 France 9,057 8,563 8,725 8,301 Netherlands 6,035 5,829 6,136 5,784 Germany 2,081 2,059 2,097 2,168 International 6,492 6,189 6,443 5,848 Continuing operations 38,740 38,789 39,035 30,751 Discontinued operation - 1,694 781 1,674 38,740 40,483 39,816 32,425
The employee benefits expense for the year amounted to:
Restated 2007 2006 ‚£'m ‚£'m
Salaries and short-term employee benefits 1,320.7
1,009.0 Social security costs 267.2 198.3 Pension costs 109.1 70.1 Share-based payments 8.5 9.3 1,705.5 1,286.7 Employee benefit expense of ‚£4.3 million (2006: ‚£19.8 million) has not beenincluded in the table above but was included within the ‚£13.5 million (2006: ‚£32.9 million) charge for restructuring and integration costs in note 3 above. The ‚£9.0 million gain reported in exceptional items in 2006 relating to theretirement benefit obligation (see note 3), was not included in the ‚£70.1million of pension costs in 2006 in the table above. Taxation Restated 2007 2006 ‚£'m ‚£'m Current tax: UK corporation tax (3.8) 17.2 Overseas tax 50.5 28.4 46.7 45.6 Deferred tax: UK corporation tax 1.8 2.4 Overseas tax (43.1) (16.8) (41.3) (14.4)
Tax charge from continuing operations 5.4
31.2 The effective tax rate on continuing operations for the year, before the shareof post-tax profits from associates, exceptional items and amortisation ofintangible assets initially recognised on acquisition, was 17.6% (2006: 25.4%),of which a credit of ‚£0.4 million (2006: charge of ‚£19.6 million) related tothe United Kingdom. The effective tax rate for 2007 was lower than 2006 due tothe use of unrecognised losses brought forward.
The effective tax rate on exceptional items was 9.5% (2006: 7.1%) and the effective tax rate on amortisation of intangible assets initially recognised on acquisition was 32.4% (2006: 32.7%).
6. Taxation (continued) The tax charge from continuing operations is lower than the standard rate ofcorporation tax in the UK applied to profit before tax. The differences areexplained below. Restated 2007 2006 ‚£'m ‚£'m Profit before tax 84.1 116.6 Less: share of post-tax profits from associates
(1.2) (0.3)
Profit before tax excluding share of post-tax profits from 82.9
116.3 associates
Tax at the UK corporation tax rate of 30% (2006: 30%) 24.9
34.9
Adjustments in respect of previous years
(7.7) (7.0)
Adjustment for foreign tax rates 2.9
2.0 Tax loss utilisation (9.9) (5.5) Income not taxable (7.6) (3.2)
Deferred tax assets not recognised 2.8
10.0
Tax charge from continuing operations 5.4
31.2
In addition to the amounts charged to the income statement, a deferred taxcharge of ‚£nil (2006: ‚£4.5 million) relating to retirement benefit schemes, adeferred tax credit relating to items transferred to the income statement onsettlement of ‚£0.6 million in 2006 and a deferred tax charge of ‚£0.1 million(2006: ‚£0.4 million) relating to share-based payment arrangements wererecognised directly in equity. In the prior year a deferred tax credit of ‚£0.6million relating to items transferred to the income statement was alsorecognised in equity.
The current tax related to exceptional items for the year ended 31 December 2007 was a tax credit of ‚£2.2 million (2006: ‚£1.7 million).
The reduction in the statutory corporation tax rate in the UK from 30% to 28%from 1 April 2008 was reflected in calculating the UK deferred tax assets andliabilities. The effect on the results for the year ended 31 December 2007 wasan additional tax charge of ‚£0.7 million. Discontinued operation
The group completed its disposal of the Telecoms Products business to an investment consortium led by Atlantic Bridge Ventures on 18 June 2007 for ‚£ 265.0 million. The transaction reflects the group's strategic focus on developing as a major international IT and business services company.
Analysis of profit from discontinued operation
2007 2006 ‚£'m ‚£'m Revenue 86.6 244.5 Net operating costs (109.2) (230.6) Operating (loss)/profit (22.6) 13.9 Finance costs (net) - (1.1) Taxation 2.3 (9.1) (Loss)/profit for the year from Telecoms Products (20.3) 3.7 Gain recognised on disposal of Telecoms Products business 119.5 - Taxation (9.8) - Profit from discontinued operation 89.4 3.7
The consolidated income statement for the year ended 31 December 2006, wasrestated to show the Telecoms Products business as a discontinued operation toallow a more meaningful comparison with the current period, as required by IFRS5 'Non-current assets held for sale and discontinued operations'.
7. Discontinued operation (continued)
The net assets of the Telecoms Products business on the date of disposal wereas follows: ‚£'m Goodwill 32.0 Other intangible assets 4.1
Property, plant and equipment
5.8
Trade and other receivables
101.4 Cash and cash equivalents 38.0 Current tax 0.5 Trade and other payables (91.2) Deferred tax (3.5) Provisions (1.4) Net assets disposed of 85.7 Total consideration 265.0
Foreign exchange differences recycled from equity
(4.1) Disposal costs (55.7) Profit on disposal 119.5 Cash consideration received 264.8
Cash and cash equivalents disposed of
(38.0)
Net cash inflow arising on disposal
226.8 The total consideration of ‚£265.0 million comprised cash of ‚£264.8 million andother assets of ‚£0.2 million. Disposal costs mainly included expenses relatedto employee redundancies, vacant property provisions, legal and advisory feesand provisions against trade and other receivables. Dividends The directors are proposing a final dividend in respect of the year ended 31December 2007 of 3.50 pence per share, which would reduce shareholders' fundsby approximately ‚£50.5 million. The proposed dividend is subject to approvalat the annual general meeting on 14 May 2008 and has not been recognised as aliability in these financial statements. The final dividend will be paid on 15May 2008 to shareholders listed on the share register on 18 April 2008. The amounts recognised as distributions to equity holders were as follows:
2007 2006 2007 2006 p / share p / share ‚£'m ‚£'m
Interim dividend, relating to 2007 / 2006 2.30 2.20
34.0 24.9
Final dividend, relating to 2006 / 2005 3.40 3.20
51.9 36.2 5.70 5.40 85.9 61.1
Dividends payable to employee share ownership trusts are excluded from the amounts recognised as distributions in the table above.
Earnings per share 2007 Weighted average Earnings Earnings number per of share shares Earnings per share from continuing operations ‚£'m
million pence
Profit for the year from continuing operations 78.7
Minority interests 1.8
Earnings attributable to ordinary shareholders 80.5 1,494.6
5.4 Basic EPS 80.5 1,494.6 5.4
Effect of share options and share awards - 20.1
(0.1) Diluted EPS 80.5 1,514.7 5.3
Adjusted earnings per share from continuing operations Earnings attributable to ordinary shareholders 80.5 1,494.6
5.4 Add back/(deduct): Exceptional items, net of tax 21.0 - 1.4
Mark-to-market gain on convertible bonds designated at fair value through profit or loss, net of tax (0.2) -
-
Amortisation of intangible assets initially recognised
on acquisition, net of tax 50.5 - 3.4 Basic adjusted EPS 151.8 1,494.6 10.2
Effect of share options and share awards - 20.1
(0.2)
Effect of convertible bonds, excluding mark-to-market 4.2 64.6
(0.1) gain, net of tax Diluted adjusted EPS 156.0 1,579.3 9.9 2007 Weighted average Earnings per Earnings number share of shares
Earnings per share from discontinued ‚£'m million
penceoperation 89.4 1,494.6 6.0
Earnings attributable to ordinary
shareholders Basic EPS 89.4 1,494.6 6.0
Effect of share options and share awards - 20.1
(0.1) Diluted EPS 89.4 1,514.7 5.9 2007 Weighted Earnings average Earnings per number share of shares
Earnings per share from total operations ‚£'m million
pence 169.9 1,494.6 11.4
Earnings attributable to ordinary
shareholders Basic EPS 169.9 1,494.6 11.4
Effect of share options and share awards - 20.1
(0.2) Diluted EPS 169.9 1,514.7 11.2
Earnings per share (continued)
Restated 2006 Weighted average Earnings Earnings number per of share shares Earnings per share from continuing operations ‚£'m
million pence
Profit for the year from continuing operations 85.4
Minority interests (7.1)
Earnings attributable to ordinary shareholders 78.3 1,215.6
6.4 Basic EPS 78.3 1,215.6 6.4
Effect of share options and share awards - 18.6
(0.1) Diluted EPS 78.3 1,234.2 6.3
Adjusted earnings per share from continuing operations Earnings attributable to ordinary shareholders 78.3 1,215.6
6.4 Add back: Exceptional items, net of tax 22.2 - 1.9
Mark-to-market loss on convertible bonds designated at fair value through profit or loss, net of tax 0.1 -
-
Amortisation of intangible assets initially recognised
on acquisition, net of tax 25.3 - 2.1 Basic adjusted EPS 125.9 1,215.6 10.4
Effect of share options and share awards - 18.6
(0.2)
Effect of convertible bonds, excluding mark-to-market 4.2 64.6
(0.2) loss, net of tax Diluted adjusted EPS 130.1 1,298.8 10.0 Restated 2006 Weighted average Earnings per Earnings number share of shares
Earnings per share from discontinued ‚£'m million
penceoperation
Earnings attributable to ordinary 3.7 1,215.6
0.3 shareholders Basic EPS 3.7 1,215.6 0.3
Effect of share options and share awards - 18.6
- Diluted EPS 3.7 1,234.2 0.3 Restated 2006 Weighted average Earnings per Earnings number share of shares Earnings per share from total operations ‚£'m million pence
Earnings attributable to ordinary 82.0 1,215.6
6.7 shareholders Basic EPS 82.0 1,215.6 6.7
Effect of share options and share awards - 18.6
(0.1) Diluted EPS 82.0 1,234.2 6.6 During the period 25 June 2007 to 2 November 2007, the company purchased andsubsequently cancelled 83.6 million ordinary shares at an average price of ‚£1.55, with a nominal value of ‚£8.4 million, for consideration of ‚£130.8million. Consideration included stamp duty and commission of ‚£0.8 million. Adjusted earnings per share, both basic and diluted, have been shown as thedirectors consider this to be helpful for a better understanding of theperformance of the group's underlying business. The earnings measure used inadjusted earnings per share excludes, whenever such items occur: the results ofdiscontinued operations; exceptional items; mark-to-market gains or losses onfinancial assets and financial liabilities designated at fair value throughprofit or loss; and amortisation of intangible assets initially recognised atfair value in a business combination. All items adjusted are net of tax whereapplicable.
Earnings per share (continued)
The weighted average number of shares excludes the shares held by employee share ownership plan ('ESOP') trusts, which are treated as cancelled.
The convertible bonds were not included in the calculation of diluted earningsper share from continuing operations for the year ended 31 December 2007 and 31December 2006 as they were anti-dilutive; however, the convertible bonds weredilutive for the purposes of calculating adjusted diluted earnings per sharefrom continuing operations for the year ended 31 December 2007 and 31 December2006. The impact of the charge for share-based payments was to reduce adjusted basicearnings per share for the year ended 31 December 2007 by 0.6 pence per share(2006: 0.8 pence per share). 10. Share capital 2007 2006 Authorised ‚£'m ‚£'m 2,250,000,000 (2006: 2,250,000,000) ordinary shares of 10 pence each 225.0 225.0 2007 2006
Allotted, called-up and fully paid Number ‚£'m
Number ‚£'m At 1 January 1,535,698,482 153.6 1,146,238,652 114.6 Allotted under share plans 5,538,792 0.6 2,595,389 0.3
Shares purchased and cancelled (83,591,195) (8.4)
- -
Allotted to acquire WM-data shares - -
377,848,632 37.8
Allotted to acquire WM-data convertible - - 9,015,809 0.9 debentures At 31 December 1,457,646,079 145.8 1,535,698,482 153.6
The company has one class of authorised and issued share capital, comprising ordinary shares of 10 pence each. Subject to the company's Articles of Association and applicable law, the company's ordinary shares confer on the holder: the right to receive notice of and vote at general meetings of the company; the right to receive any surplus assets on a winding-up of the company; and an entitlement to receive any dividend declared on ordinary shares.
During the period 25 June 2007 to 2 November 2007, the company purchased andsubsequently cancelled 83.6 million ordinary shares at an average price of ‚£1.55, with a nominal value of ‚£8.4 million, for consideration of ‚£130.8million. Consideration included stamp duty and commission of ‚£0.8 million. 11. Share premium 2007 2006 ‚£'m ‚£'m At 1 January 1,097.0 1,084.8 Premium on shares allotted under share plans
1.9 3.1
Premium on shares allotted to acquire WM-data convertible
- 9.1 debentures, net of expenses At 31 December 1,098.9 1,097.0 During the year ended 31 December 2007, the share premium account was reducedby ‚£nil of expenses related to the issuance of new ordinary shares (2006: ‚£5.6million). Reconciliation of operating profit to cash generated from continuing operations Restated 2007 2006 ‚£'m ‚£'m
Operating profit from continuing operations 109.7
141.9 Adjustments for: Share-based payment expense 8.5 9.3
Depreciation of property, plant and equipment 38.7
29.2
Loss on disposal of non-current assets and subsidiaries 2.1
1.0
Loss on disposal of businesses 9.7
-
Amortisation of intangible assets 84.0
44.1
Impairment of financial assets 1.8
-
Derivative financial instruments (1.0) 0.6 Defined benefit plans (4.2) (13.4) 139.6 70.8 Net movements in provisions (18.1) 3.6
Movements in working capital:
Inventories 0.6 (0.2) Trade and other receivables 33.3 (51.3) Trade and other payables (32.7) 44.7 1.2 (6.8)
Cash generated from continuing operations 232.4
209.5
Add back: Cash outflow related to restructuring and integration 28.6
33.0 activities
Net cash inflow from trading operations 261.0
242.5 The consolidated cash flow statement for the year ended 31 December 2006 wasrestated to show the Telecoms Products business as a discontinued operation toallow a more meaningful comparison with the current period.
Reconciliation of movements in net debt
At Acquisitions Other At 1 and non-cash Exchange 31 January December Cash disposals* movements differences 2007 flows 2007 ‚£'m ‚£'m ‚£'m ‚£'m ‚£'m ‚£'m Cash and cash 177.3 (78.2) - - 9.6 108.7 equivalents Bank overdrafts (26.4) 17.8 - - (0.5) (9.1) 150.9 (60.4) - - 9.1 99.6 Finance leases (6.5) 4.7 0.1 (4.7) (0.8) (7.2) Bank loans (498.0) 169.5 - (1.9) (24.3) (354.7) Other loans (1.1) 0.2 - - - (0.9) Convertible (202.4) - - 0.2 (17.8) (220.0) bonds Net debt (557.1) 114.0 0.1 (6.4) (33.8) (483.2)
* Excludes cash and cash equivalents assumed on acquisition of businesses, amounting to ‚£5.6 million and cash and cash equivalents disposed of ‚£41.4 million and bank overdrafts disposed of ‚£1.3 million.
Disposals Telecoms Products
The Telecoms Products business was disposed of on 18 June 2007 and has been presented as a discontinued operation. The associated disclosures are given in note 7.
CaranThe group completed the disposal of its industrial design and productdevelopment business Caran to Swedish conglomerate JCE Group on 4 June 2007 for‚£24.1 million. The disposal process for Caran included a rationalisation ofits previous business ventures with Saab. These latter transactions, whichcompleted on 1 April 2007, included: the sale of a 50% interest in Caran SaabEngineering AB; the purchase of a 40% interest in A2 Acoustics AB and theacquisition of Saab's Combitech operations. The entire share capital of A2Acoustics AB and the Combitech operations were subsequently disposed of on
4June 2007. The net assets of the Caran business that was sold to JCE Group on 4 June 2007were as follows: ‚£'m Goodwill 16.3 Other intangible assets 8.4 Property, plant and equipment 1.3 Trade and other receivables 18.6 Cash and cash equivalents 1.0 Borrowings (1.3) Trade and other payables (15.1) Current tax (0.5) Deferred tax (2.5) Net assets disposed of 26.2 Total consideration 24.1
Foreign exchange gains recycled from equity
0.2 Disposal costs (0.9) Loss on disposal (2.8) Cash consideration received 24.1
Cash and cash equivalents disposed of
(1.0)
Net cash inflow arising on disposal
23.1
The sale of the group's 50% associate interest in Caran Saab Engineering AB on1 April 2007 generated a profit of ‚£3.0 million from cash considerationreceived of ‚£4.4 million. Together with the ‚£2.8 million loss on disposal ofthe Caran business sold to JCE Group on 4 June 2007, the group's combinedprofit from the disposal of all Caran-related business activities was ‚£0.2
million. Other business disposalsThe group completed the sale of certain other non-core businesses during theyear, as described below. The aggregate net assets of these businesses, whichare not individually significant, at their date of disposal are analysed below: ‚£'m Goodwill 11.3 Other intangible assets 1.4
Property, plant and equipment
1.1 Other non-current assets 0.2 Inventories 1.2 Trade and other receivables 4.1 Cash and cash equivalents 2.4 Trade and other payables (2.8)
Retirement benefit obligations
(1.2) Net assets disposed of 17.7 Total consideration 15.6
Foreign exchange losses recycled from equity
(1.2) Disposal costs (6.6) Loss on disposal (9.9) Cash consideration received 15.2
Cash and cash equivalents disposed of
(2.4)
Net cash inflow arising on disposal
12.8 Disposals (continued) The total consideration for the sale of other non-core businesses was ‚£15.6million, of which ‚£15.2 million was received in cash during the year and ‚£0.4million is receivable during the first half of 2008. Included in the ‚£6.6million disposal costs was a ‚£2.6 million impairment loss relating to buildingspreviously occupied by the graphic services business in Portugal prior to thedisposal of this business.
The other non-core businesses disposed of during the year comprised the following:
an element of the payroll business in the Netherlands which provided solutions for the SME and local government market;
the Copidata integrated graphic services business in Portugal;
the business providing staff augmentation and hosting services to the automotive industry in the United States;
the former WM-data subsidiary operating in Germany, WM-data Deutschland GmbH;
the subsidiary operating the group's IT services business in Austria, LogicaCMG GmbH;
small finance BPO businesses in Norway and Sweden; and
a part of the IT services business in Denmark, providing services and products to tax authorities around the world.
These disposals do not match the criteria of IFRS 5 'Non-current assets heldfor sale and discontinued operations' as none of the disposals represents aseparate major line of business or geographical area of operations and hencewere not treated as a discontinued operation. Acquisitions
During the year, the group made a small number of acquisitions in the Nordic region, as described below.
Siemens Business Systems
On 31 March 2007, the group acquired the outsourcing, IT infrastructure and systems integration business of Siemens Business Systems AS in Norway. The acquisition comprised the purchase of the business assets and liabilities, together with the transfer of approximately 250 employees.
Medici Data Oy
On 29 November 2007, the group acquired a 63.66% interest in Medici Data Oy,resulting in full ownership of this company. The 36.34% associate interestheld previously was acquired with the WM-data group in October 2006. MediciData Oy is a Finnish company specialising in developing and buildingapplications for planning, controlling and documenting patient care processesand providing information management services to the health care sector.
Karttakone Oy
On 31 October 2007, the group acquired a 100% interest in Karttakone Oy, a company providing digital and paper-based mapping products covering the whole of Finland and other parts of Europe.
Internet Telecom Payment Solutions AB
On 31 August 2007, the group acquired a 55% interest in Internet TelecomPayment Solutions AB, resulting in full ownership of this company. The 45%associate interest held previously was acquired with the WM-data group. Thecompany provides solutions and services relating to billing for the telecomssector in Sweden. Saab Combitech
On 1 April 2007, the group acquired Saab's Combitech operations and subsequently disposed of the operations as part of the rationalisation of business ventures with Saab referred to in note 14.
15. Acquisitions (continued)
The provisional fair values of the identifiable assets and liabilities acquired in all acquisitions were as follows:
Carrying amount pre-acquisition Fair value ‚£'m ‚£'m Intangible assets - 1.9
Property, plant and equipment 3.9 3.9
Inventories 0.1 0.1 Trade and other receivables 8.8 8.8 Current tax 0.2 0.2 Cash and cash equivalents 5.6 5.6 Trade and other payables (4.6) (4.6) Deferred tax - (0.6)
Retirement benefit obligations (0.2) (0.2)
Net assets acquired 13.8 15.1
Profit recognised as associates (0.1)
15.0 Goodwill 10.9 Total consideration 25.9
Total consideration comprised:
Cash 22.9 Deferred consideration 0.7
Fair value of associate interest when acquired 2.0
Directly attributable costs 0.3 25.9 Factors that contributed to the recognition of goodwill of ‚£10.9 million onacquisitions during the year were: anticipated revenue and cost synergies withexisting operations in Norway and Finland; the value of the workforce in placeand the anticipated profits from winning business in the future from new ratherthan existing customers.
The fair values for the acquisitions were final, except for the fair values ofMedici Data Oy included in the table above. Due to the short time periodbetween the acquisition of a controlling interest in Medici Data Oy and thedate of approval of the consolidated financial statements, the fair valuesabove contain some provisional amounts which will be finalised during the 2008financial year. Contingent liabilities The group's subsidiaries and the company are currently, and may be from time totime, involved in a number of legal proceedings including inquiries from ordiscussions with governmental and taxation authorities. Whilst the outcome ofcurrent outstanding actions and claims remains uncertain, it is expected thatthey will be resolved without a material impact on the group's financialposition. 17. Events after the balance sheet date
On 15 February 2008, Energias de Portugal S.A. (EDP) notified the group of itsexercise of the EDP Put Option, under the terms of the shareholders agreemententered into between EDP and Logica on 20 April 2005. Accordingly, EDP gavenotice that it will sell to Logica the remaining 40% interest in the equityshares of Edinfor - Sistemas Informƒ¡ticos S.A. and the outstanding shareholderloans. On completion of this transaction Logica will own a 100% equityinterest in Edinfor.
LOGICACMG PLCRelated Shares:
LOG.L