Final Results

28th Feb 2007 07:00

Press information28 February 2007

LogicaCMG reports operating profit up 30% in 2006

Following the acquisition of WM-data (completed in October 2006) and the divestment of Telecoms products (announced in February 2007), LogicaCMG is a substantial European company with an extensive international network focused on IT and business services.

Financial highlights

For the year ended 31 December 2006, LogicaCMG plc financial results were as follows, with comparatives on a reported basis for 2005 (restated where applicable):

- Revenue up 45.3% at ‚£2,665.2 million (2005: ‚£1,834.1 million)

- Book to bill of 1.11:1 (2005: 1.27:1, including the ¢â€š¬510 million EDP order)

- Operating profit up 29.7% at ‚£155.8 million (2005: ‚£120.1 million)

- Adjusted operating profit (excluding exceptional items and amortisation of acquisition related intangibles) up 78.6% at ‚£217.3 million (2005: ‚£121.7 million)

- Profit before tax of ‚£129.4 million (2005: ‚£104.8 million)

- Basic earnings per share, including exceptional items and amortisation of acquisition related intangibles, of 6.7p (2005: 7.3p)

- Adjusted basic earnings per share up 42.7% at 10.7p (2005: 7.5p)

- Cash generated from operations of ‚£216.8 million (2005: ‚£167.0 million). Net cash inflow from trading operations of ‚£250.4 million (2005: ‚£180.8 million), a cash conversion of 115% (2005: 149%)

- Net debt at 31 December 2006 of ‚£557.1 million (31 December 2005: ‚£96.1 million)

- Final dividend of 3.4p, making a total for the year of 5.6p (2005: 5.31p)

Operational highlights

IT services revenue (90.8% of Group total) grew 5.0% on a pro forma5 basis (53.3% on a reported basis)

- Revenue growth of 10.0% for a second consecutive year in the Netherlands

- Underlying growth in UK (excluding passthrough revenue) of 1.9%

- The Nordics finished the year with strong growth in the fourth quarter

Full year adjusted operating margin of 8.4% in IT services (2005: 6.8%)

- IT services margins were increased or maintained in all major geographies

Positive order momentum in the former Unilog businesses, expected cost savings achieved and Germany now in profit

- Over ¢â€š¬100 million of cross-selling orders recorded in the former Unilog businesses in 2006

- Expected integration cost savings of ‚£10 million in 2006 achieved

- Germany returned to profit in the second half of 2006

Commenting on the results, Dr Martin Read, LogicaCMG's Chief executive, said:

"We are pleased to have achieved another year of strong growth in adjusted earnings per share and operating cashflow. IT services margins in all our major geographies have been increased or maintained and we have returned to profit in Germany in the second half.

"2006 was also an important year in the strategic development of our business. We have made good progress in integrating our acquisitions. In addition to the expected cost savings, we achieved ¢â€š¬100 million of cross-selling orders in the former Unilog businesses. WM-data finished the year with a strong fourth quarter and we see good early cross-selling opportunities.

"Following the recently announced sale of our Telecoms products business, we will be returning around ‚£130 million of cash to our shareholders. We enter 2007 as a substantial European company with an extensive international network focused on IT and business services. We will concentrate on delivering the benefits of integration and additional cross-selling, as well as leveraging our greater scale. We expect 2007 to be a year of sustained growth, in line with our expectations."

For further information, please contact:

LogicaCMG Media relations : Carolyn Esser/Louise Fisk +44 (0) 20 7446 1786 (mobile: +44 (0) 7841 602391)

LogicaCMG Investor relations: Karen Keyes/Frances Gibbons +44 (0) 20 7446 4341 (mobile: +44 (0) 7801 723682)

Brunswick: Tom Buchanan/Chris Blundell +44 (0) 20 7404 5959

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Notes:

1. 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 and losses on financial assets and financial liabilities designated at fair value through profit or loss

amortisation of those intangible assets initially recognised at fair value in a business combination

tax on those items, where applicable

2. Adjusted operating profit and margin are from continuing operations and, where applicable, before exceptional items and amortisation of those intangible assets initially recognised at fair value in a business combination.

FY'06 FY'05 l FY'05 FY'04 Pro forma Operating profit 155.8 120.1 78.6 Add back impact of: Exceptional items (net) 23.9 0.6 19.6 Amortisation of acquisition-related intangibles 37.6 1.0 - Adjusted operating profit 217.3 186.6 121.7 98.2

3. Net cash inflow from trading operations is cash generated from operations before cash flows from restructuring and integration charges and other exceptional items. Cash conversion represents net cash inflow from trading operations divided by adjusted operating profit.

4. Basic earnings per share for 2005 has been restated to 7.3p per share to reflect a reduction of ‚£0.8 million in the share of post-tax profit from associates. This follows the finalisation of the fair values of certain intangible assets within the Unilog business, which was accounted for as an associate during 2005.

5. Pro forma, constant currency comparisons are made between 2006 reported financial information and 2005 comparative financial information that has been adjusted by applying the exchange rates prevailing in 2006 and as if Unilog and Edinfor were consolidated from 1 January 2005, WM-data was consolidated from 13 October 2005, Worksuite was consolidated from 1 February 2005, and as if PDV.com was disposed of on 1 July 2005. This is intended to provide a more meaningful comparison to the prior year.

6. Exchange rates used are as follows:

FY'06 H2'06 H1'06 FY'05 ‚£1 / ¢â€š¬ Average 1.47 1.48 1.46 1.46

End of period 1.48 1.48 1.45 1.46

‚£1/ US$ Average 1.84 1.90 1.79 1.82

End of period 1.96 1.96 1.85 1.72

‚£1 / SEK Average 13.57 13.57 13.56 13.59

End of period 13.39 13.39 13.32 13.66

Overview

Overall, the IT services market remained positive in 2006 with increasing volumes and a generally improving pricing environment. Average market growth in IT services across our major geographies was in the range of 4-6%, with Financial services the strongest growing sector at approximately 6-8%. We continued to achieve price increases, particularly in areas of skills shortages and in the fastest-growing markets. Strengthened account management, domain knowledge and blended delivery with the increased use of our global delivery organisation and ongoing recruitment continue to be important in achieving growth.

The 2006 book to bill ratio was 1.11:1 (excluding WM-data) compared to 1.27:1 in 2005, when we booked a ¢â€š¬510 million order with Energias de Portugal (EDP). With the acquisition of Unilog, cross-selling into France and Germany has been an area of focus in 2006 and we have been awarded multi-year orders valued at more than ¢â€š¬100 million. We have also announced a number of significant wins in our other major geographies through the year. These include a ¢â€š¬200 million contract with Financial services provider ING, a ‚£150 million applications outsourcing contract with the UK Department for Constitutional Affairs and an ‚£ 80 million contract with the UK Ministry of Defence. We also won transformational outsourcing contracts with InBev in Western and Eastern Europe and new contracts in the Dutch Public sector. Contract renewals were signed with Volvo in Sweden and Welsh Water in the UK.

The strategic acquisitions of Unilog and WM-data contributed to a 45.3% increase in reported revenue in 2006. Revenue was ‚£2,665.2 million (2005: ‚£ 1,834.1 million). Weakness in the Euro and dollar exchange rates, which accelerated through the second half of 2006, had an adverse effect on reported revenue when translated into pounds sterling. Reported revenue in Telecoms products was down 4.0% on last year.

REVENUE BY MARKET SECTOR % Growth % Growth FY'05 FY'06 on FY'06 on FY'06 FY'05 ‚£'m FY'05 FY'05 ‚£'m ‚£'m Actual Pro forma Actual Pro forma Telecoms products 244.5 255.9 254.7 (4.5) Telecoms services 225.0 180.8 116.4 24.4 Public sector 619.3 594.5 471.3 4.2

Industry, distribution & transport 663.9 660.8 343.2 0.5

Energy & utilities 427.5 452.8 352.9 (5.6) Financial services 485.0 416.0 295.6 16.6 Group 2,665.2 2,560.8 1,834.1 4.1 45.3

Our recently-announced divestment of the Telecoms products business will allow us to focus on our core strengths in IT and business services. IT services revenue, which represented over 90% of 2006 group revenue, was up 5.0% on a pro forma basis. Our fastest-growing market for the second consecutive year was the Netherlands where we grew at approximately twice the market rate.

Regulatory requirements remained a key driver for growth in Financial services in 2006. Cost reduction, along with new service introduction was an important contributor to growth among Telecoms and Industry, distribution and transport (IDT) customers. Our exposure to IDT increased significantly with the addition of Unilog. IDT represented 27% of IT services revenue in 2006, up from 22% on a reported basis last year. Strong spending by government customers in the Netherlands and Germany drove growth in Public sector revenue at a group level.

Our top 10 customers accounted for 21% of group revenue (excluding WM-data) in 2006.

The percentage of revenue from outsourcing increased from 26% to 27% on a reported basis. We expect to see continued progress towards our target of 30-40% from outsourcing in 2007 as a result of the following:

- a general market trend to consolidate suppliers resulting in more complex deals being awarded to a smaller number of larger suppliers who have access to a more comprehensive service delivery capability coupled with specific process or functional knowledge;

- a shift in buying behaviour in our core geographies, France and the Netherlands, toward outsourcing based contracts; and

- a long-established outsourcing business in the WM-data business in the Nordics which will contribute to revenue from outsourcing for a full year in 2007.

Adjusted operating profit was ‚£217.3 million, up 16.5% on a pro forma basis from last year (2005: ‚£186.6 million). This represents an adjusted operating margin for the year of 8.2%, up from 7.3% on a pro forma basis last year. IT services margins were maintained or increased in all our major geographies. Germany returned to profit in the second half of the year.

For the year ended 31 December 2006, the profit before tax was ‚£129.4 million, compared with ‚£104.8 million last year. Greater efficiencies in our tax structure and the lower tax rate in the Nordics (with results consolidated for a portion of the fourth quarter) further contributed to an improvement in net earnings compared to last year.

Basic earnings per share from continuing operations, which included higher net exceptional items and amortisation of acquisition-related intangibles than last year, were 6.7p (2005: 7.3p). Adjusted basic earnings per share were 10.7p (2005: 7.5p) on a weighted average share count of 1,215.6 million in 2006.

Higher net exceptional costs of ‚£23.9 million (2005: ‚£0.6 million) and amortisation of acquisition-related intangibles of ‚£37.6 million (2005: ‚£1.0 million) were mainly related to the Unilog and WM-data acquisitions.

Within the net exceptional items, restructuring costs were partly offset by a credit of ‚£9.0 million in relation to a harmonisation of our main UK pension scheme undertaken in 2006. Restructuring items included ‚£24.9 million for the headcount and property rationalisation activities in France and Germany, as well as costs related to the Worksuite acquisition and property rationalisation in the US and ‚£1.1 million related to the WM-data integration. Total restructuring and integration costs are expected to be ‚£20.9 million in 2007.

Outlook

At current exchange rates, underlying revenue for 2006 was ‚£2,946.2 million. This includes a full year of WM-data results and excludes Telecoms products for 2006.

As we enter 2007, the IT services market remains positive with increasing volumes and a generally improving pricing environment.

We expect overall growth of between 4% and 6% in the European IT services market in 2007, with our Netherlands, Nordic and French businesses likely to be at least in line with the growth rates in their respective markets. The UK remains the most competitive market but we expect to return to revenue growth on a reported basis in 2007.

In 2007, we will focus on continuing the successful integration of Unilog and WM-data into the group. We will have a full year of the Unilog cost savings, with WM-data cost savings of approximately ‚£7.5 million, predominantly in the second half.

The divestment of the lower margin Telecoms products division is expected to be earnings neutral in 2007. The WM-data acquisition is expected to be earnings enhancing.

We enter 2007 as a strong European company focused on IT and business services and with an extensive international network. We expect 2007 to be a year of sustained growth, in line with our expectations.

Strategic Development

The Unilog transaction completed on 13 January 2006, with the compulsory redemption process to buy out remaining shareholders completed in July 2006.

We have made good progress on integration through the year, in line with our plans. We delivered ‚£10.0 million of cost savings from the Unilog integration in 2006. This was mainly a result of significant restructuring in Germany and France as well as improved utilisation in France. Finally, the combination of Unilog relationships, the LogicaCMG value propositions and the ability to price competitively on larger deals, led to cross-selling wins. The formal transition to the LogicaCMG brand in these markets is expected to occur before the end of 2008.

In August 2006, we announced the acquisition of WM-data through a cash and share offer to holders of WM-data shares and convertible debentures. The acquisition was in line with our stated strategic objectives to expand our European footprint. The transaction was completed in October 2006 and we began consolidating results for WM-data from 13 October. In conjunction with the transaction, we issued 386.9 million new shares and paid ‚£170.8 million (SEK2.35 billion) in cash consideration, excluding transaction costs. We have initiated the compulsory redemption process for the remaining WM-data minority interests and currently expect this to complete between the end of 2007 and mid 2008. The LogicaCMG brand will be introduced in our Nordic markets in the second half of 2007.

In February 2007, we announced the divestment of the Telecoms products business to an investment consortium led by Atlantic Bridge Ventures for ‚£265 million. This transaction reflects LogicaCMG's strategic focus as a major international IT and business services company. In conjunction with the transaction, we announced we would undertake a ‚£130 million share buyback in 2007 and willuse the remaining net proceeds to buy out existing minority interests and to pay down group debt. We will also provide transition services to the new company, Acision, and will provide them with a ‚£15 million loan which is repayable after two years. Completion of the transaction is expected following employee consultations and regulatory approvals.

Employees

Employee numbers almost doubled in 2006, as Unilog and WM-data joined the group. At year end, we had 40,483 employees, compared to 29,469 on completion of the Unilog transaction in January 2006 and 21,340 at the end of 2005.

Despite exceeding our internal recruitment targets in the Netherlands and France, higher attrition across the industry resulted in capacity constraints in these markets. Annualised voluntary attrition for the group was approximately 16%.

We are using our "Releasing your Potential" brand initiative to raise our profile with internal and external employee audiences in a tighter recruitment market and are making use of new recruitment channels. Awareness-raising activities at major universities and initiatives such as work placement have been intensified to increase graduate recruitment in our major geographies. In France, we have recently launched a recruitment advertising campaign in French railway stations while, in the Netherlands, we have seen growing enrolment in a new work placement programme for undergraduates. In the second half of 2006, the number of referrals from existing employees has increased across the group. We have also deepened our relationships with specialist recruitment agencies which can source in-demand skills such as SAP on a permanent and flexible basis. At the end of 2006, we had over 3,000 SAP specialists.

Global Services Delivery

Growth of our global services delivery (GSD) organisation continues to be managed flexibly to ensure we can meet customer demand. Overall, we had approximately 6,000 people within the GSD organisation at the end of 2006, with growth in India, Morocco, and Eastern Europe and a newly opened facility in the Philippines. The ability to blend the right skills from the right competence centres, whether they be onshore, nearshore or offshore, such that it provides the best value for money at minimal risk is fundamental to our customers requirements moving forward. Our capability to deliver a blended model has broadened to encompass application development and support, testing, product engineering and BPO (F&A, HR and procurement).

Review of Operations

Note: Pro forma, constant currency comparisons are made between 2006 reported financial information and 2005 comparative financial information that has been adjusted by applying the exchange rates prevailing in 2006 and as if Unilog and Edinfor were consolidated from 1 January 2005, WM-data was consolidated from 13 October 2005, Worksuite was consolidated from 1 February 2005, and as if PDV.com was disposed of on 1 July 2005. This is intended to provide a more meaningful comparison to the prior year.

IT services UNITED KINGDOM % Growth % Growth FY'05 FY'05 FY'06 on FY'06 onRevenue by market sector FY'06 ‚£'m ‚£'m FY'05 FY'05 ‚£'m Pro forma Actual Pro forma Actual Public sector 337.1 331.1 329.5 1.8

Industry, distribution & transport 136.7 128.5 121.2 6.4

Energy & utilities 104.7 148.9 147.8 (29.7) Financial services 85.7 66.4 64.2 29.1 Telecommunications 54.2 50.3 49.3 7.8 Total 718.4 725.2 712.0 (0.9) 0.9 Outsourcing % 40 37 38 Adjusted operating margin % 10.8 11.1 11.3

Underlying pro forma revenue growth (excluding the impact of ‚£20 million of passthrough materials revenue in Energy and utilities in 2005) was 1.9%. Adjusted operating margin in the UK for the year remained strong, as we continued to extend the use of our global service delivery capability and to reduce the use of subcontractors in the second half.

The UK continued to be our most competitive market in 2006. We managed our cost structure to compete with offshore players by increasing our delivery from lower cost sites.

In a competitive market, we continued to win major projects, such as the ‚£150 million contract with the Department for Constitutional Affairs (DCA) and the ‚£ 80 million contract with the Ministry of Defence (DMICP), which deliver cost benefits to the customer and provide a flexible platform for modernisation, building on specialised industry expertise and our track record of delivery.

Our order pipeline has strengthened going into 2007, with a healthy order backlog in the Public sector.

The Public sector continued to represent just under half of our revenue in 2006. Public sector revenue growth for the year was 1.8% on a pro forma basis, in line with overall market growth in this sector. The shift of expected revenue under a recent-awarded contract into 2007 had an impact on revenue growth in the second half. However, contracts with the DCA, the ATLAS Consortium (DII), the Crown Prosecution Service (CPS), Ministry of Defence (DMICP) and the European Space Agency provide a strong underlying revenue stream into 2007, which we expect to lead to modest revenue growth in 2007.

Financial services grew 29.1% on a pro forma basis for the year, ahead of strong market growth. In addition to work in the payments area, we continued to deliver under a contract with Barclays as well as increased work in managed testing for a number of clients.

IDT revenue also increased, with pro forma revenue growth of 6.4% over last year as we delivered under existing contracts in the transport, automotive and housebuilding sectors. With the conclusion of an infrastructure-based support contract, IDT revenue is expected to be somewhat lower in 2007 than in 2006. Within IDT, businesses remain focused on cost reduction and we are working with customers to explore the wider use of our blended service delivery model. In the second half, we signed an extension of our outsourcing contract with Lotus Cars.

The decline in Energy and utilities was largely due to the passthrough revenuerecorded in 2005 and the phasing of new contracts in 2006. Our position as akey applications services provider alongside a new three-year frameworkagreement with a major Energy and utilities customer positions us well forfuture growth. FRANCE % Growth % Growth FY'05 FY'05 FY'06 on FY'06 onRevenue by market sector FY'06 ‚£'m ‚£'m FY'05 FY'05 ‚£'m Pro forma Actual Pro forma Actual Public sector 60.8 62.7 8.4 (3.0) Industry, distribution & transport Recurring 205.1 206.6 28.8 (0.7) Non-recurring 33.1 36.2 36.4 (8.6) Energy & utilities 66.4 54.6 3.7 21.6 Financial services 145.0 129.0 30.3 12.4 Telecommunications 49.6 42.6 9.1 16.4 Total 560.0 531.7 116.7 5.3 379.9 Outsourcing % 30 30 17 (of recurring revenue) Adjusted operating margin % 8.7 7.1 (7.5) (of recurring revenue)

On a pro forma basis, French revenue growth was 5.3%. The implementation of restructuring actions in the first half, improved utilisation in the former LogicaCMG business and lower passthrough revenue led to an improvement in full year adjusted operating margin.

Capacity constraints contributed to lower 2006 revenue growth. They also resulted in a French order backlog at the beginning of 2007 significantly higher than last year.

Cross-selling synergies have increased through the year. Three major applications management wins were awarded in the second half. These contracts - with a major French retail customer, a major IDT customer and international gas company Air Liquide - will be partly delivered out of delivery centres in India or Morocco. We were also able to cross-sell our SAP Netweaver and HR outsourcing expertise into two large IDT clients.

In addition to capacity constraints, a lower level of passthrough revenue than last year in the former LogicaCMG business limited revenue growth during the second half, with capacity constraints contributing to generally lower revenue growth across all sectors.

Financial services grew by 12.4% on a pro forma basis in 2006. A significant contributor was our first major cross-selling win - a ¢â€š¬23 million order with a major French Financial services institution booked in the first half.

Our selection as a preferred supplier to a major utilities provider contributed to stronger growth in Energy and utilities (up 21.6% on a pro forma basis). The three year contract awarded in the second half for the maintenance of all of Air Liquide's European IT applications (excluding SAP) will also contribute to growth in this sector in 2007.

In Telecoms, revenue was up 16.4% on a pro forma basis. Sales to a major global telecom operator were the main contributing factor.

IDT revenue was 1.9% lower than last year on a pro forma basis due to lower sales to a major customer in the automotive sector compounded by the lower level of passthrough revenue mentioned above. In order to improve the quality of revenue being delivered in France, we have phased down the level of passthrough revenue in 2006. Passthrough revenue was approximately ‚£33.1 million of revenue in 2006, compared to ‚£36.2 million in 2005. Adjusted operating margin on the passthrough revenue was 2.7% in 2006. Excluding passthrough, French pro forma revenue growth in 2006 would have been 6.3%. We expect minimal passthrough revenue in 2007.

Public sector revenue slowed as delivery under two major contracts drew to a close. Overall, Public sector spending continues to show growth. We were awarded a number of new contracts in the defence area in 2006 under which we expect to deliver increased revenue in 2007.

The peak recruiting season in the fourth quarter allowed us to significantly increase capacity, with the net addition of over 300 employees. At the end of 2006, we had 8,563 employees in France, compared to an average of 8,368 in the second half. This positions us well to increase revenue growth in 2007, benefiting from continuing good demand in the French market.

NETHERLANDS % Growth % Growth FY'05 FY'05 FY'06 on FY'06 onRevenue by market sector FY'06 ‚£'m ‚£'m FY'05 FY'05 ‚£'m Pro forma Actual Pro forma Actual Public sector 121.9 110.9 111.7 9.9

Industry, distribution & transport 103.0 98.1 98.7 5.0

Energy & utilities 49.4 45.7 46.0 8.1 Financial services 147.3 127.1 127.9 15.9 Telecommunications 26.0 25.1 25.3 3.6 Total 447.6 406.9 409.6 10.0 9.3 Outsourcing % 13 14 14 Adjusted operating margin % 9.9 9.3 9.3

Full year revenue in the Netherlands grew by 10.0% on a pro forma basis, benefiting from general market strength in the Netherlands as well as our strong market position and focused account management. The ability to achieve price increases, improved utilisation and increased use of offshore resources all contributed to a substantial improvement in adjusted operating margin to 9.9%.

We saw revenue growth across all sectors with the split of market sectors remaining broadly unchanged. We won a number of larger deals, several of which included a component of blended services delivery. We are continuing to recruit in the Netherlands to meet strong market demand.

The Financial services sector benefited from strongest growth as we continued to work with Financial services customers such as ABN AMRO, Aegon, Delta Lloyd, ING and Rabobank. In the second half, we booked initial revenue under the six-year contract signed in November 2006 for application development, management and support as well as outsourced testing for ING retail banking.

Approximately 300 ING employees transitioned to LogicaCMG at the beginning of 2007 and we began the deployment of infrastructure in support of this contract.

In the Public sector, we increased our position within the social security area as the government sought to modernise service provision. We won new contracts with the Dutch unemployment office (UWV) and the Centre for Work and Income (CWI) for the application development and maintenance of new IT applications, with software to be delivered and maintained in our Dutch development factory. Increased Public sector spending and increased revenue under our e-procurement contract for several Dutch ministries led to growth of 9.9% on a pro forma basis in this sector in 2006.

In Energy and utilities, we were selected as one of four key applications services providers to Shell. Delivery under our recently-renewed four-year contract for infrastructure and applications management with energieclearingHouse was also a major contributor to increased revenue.

In IDT, we grew in line with the market at 5.0% on a pro forma basis. Capacity constraints, particularly in ERP, limited revenue growth in the second half. In a generally improved economy, customers are focused on globalisation of operations. Cost reduction, partly through outsourcing, also remains a key driver. A good example of our ability to take on strategic outsourcing with key customers is a five-year partnership in software products with Philips Applied Technologies. Under this agreement, over 30 highly-skilled employees with industry-specific knowledge have been transferred to LogicaCMG to provide maintenance, support and development of new releases of Phillips software.

NORDICS % Growth % Growth FY'05 FY'05 FY'06 on FY'06 onRevenue by market sector FY'06 ‚£'m ‚£'m FY'05 FY'05 ‚£'m Pro forma Actual Pro forma Actual Public sector 55.8 56.2 - (0.7)

Industry, distribution & transport 81.9 81.0 0.2 1.1

Energy & utilities 13.0 10.2 - 27.5 Financial services 20.2 10.1 1.8 100.0 Telecommunications 19.6 21.3 3.5 (8.0) Total 190.5 178.8 5.5 6.5 3,363.6 Outsourcing % 31 - 15 Adjusted operating margin % 8.9 8.1 (25.5)

We reported revenue of ‚£190.5 million in the Nordics in 2006. This represents approximately two and a half months of revenue from WM-data as well as ‚£4.5 million from the existing LogicaCMG business in Sweden. Adjusted operating profit on a reported basis for the Nordics was ‚£16.9 million, representing an adjusted operating margin of 8.9%.

Full-year results for WM-data were in line with expectations, with full-year revenue of SEK 10,567 million and an adjusted operating profit (including the share of profit from associates of SEK 22 million) of SEK 997 million.

Adjusted operating margins were stable or improved in all countries.

We are seeing good early prospects in cross-selling solutions to Nordic customers, which we expect to convert to orders in 2007. We have seen particularly strong interest in our blended global service delivery capability among Nordic accounts.

WM-data 2006 revenue grew 14% when compared with 2005, representing a full year of revenue from the acquisition of Atos Origin's Nordic operation (acquired in July 2005). On a year on year basis, organic revenue growth was 4%.

Swedish revenue grew by 22%. Excluding the effect of acquisitions, this represented organic growth of 5%. The cost savings achieved through the integration of the Atos Origin Nordics business resulted in adjusted operating margin improving from 6.2% to 8.6%.

In Finland, organic growth was 3% with adjusted margins at 11.7%. The focus for 2007 is on taking advantage of our market position to achieve a higher level of organic revenue growth while maintaining double-digit margins.

The Norwegian business strengthened its position in the Utilities sector, with the integration of new skills and customer relationships from the former Atos Origin. This improved position, as well as improved efficiency in the former WM-data business, led to an improvement in adjusted operating margin in Norway.

The Danish operation continued to grow and improve its margins with a strong market position within the growing Health Care sector being an important contributor. In addition, the acquisition of ASA Mentor A/S in 2006 strengthened WM-data's position in SAP.

Revenue at Caran, which provides industrial design solutions for automotive, aerospace and manufacturing clients, was lower than last year due to a reduction in R&D investment in the automotive industry, which was partly offset by growth with manufacturing customers.

GERMANY % Growth % Growth FY'05 FY'05 FY'06 on FY'06 onRevenue by market sector FY'06 ‚£'m ‚£'m FY'05 FY'05 ‚£'m Pro forma Actual Pro forma Actual Public sector 12.1 8.6 0.4 40.7

Industry, distribution & transport 67.5 79.6 33.6 (15.2)

Energy & utilities 24.9 17.7 11.7 40.7 Financial services 39.5 39.8 29.4 (0.8) Telecommunications 24.6 13.8 3.7 78.3 Total 168.6 159.5 78.8 5.7 114.0 Outsourcing % 20 17 35 Adjusted operating margin % (0.8) (4.0) (15.0)

We achieved revenue growth of 5.7% in Germany on a pro forma basis. We were helped by an improving market in Germany and finished the year with a healthy order book. Adjusted operating margin was 4.6% in the second half, in line with our guidance for a return to profit, as the restructuring programme benefits came through.

Our managed testing project for a major operator contributed to a revenue increase of 78.3% in Telecoms on a pro forma basis. The Public sector also grew by 40.7% on a pro forma basis, as we began to deliver revenue under our contract for delivery of an emissions trading registry with the UNFCCC. These increases as well as an increase in Energy and utilities (up 40.7% on a pro forma basis) offset a decrease in other sectors.

The training business, which delivers a significant portion of its revenue in the second half, contributed to higher second half revenue.

Following the completion of a major restructuring programme in 2006, we finished the year with headcount of 2,059. With the restructuring complete and a stronger organisation in place, the focus in 2007 will be on increasing recruitment to drive revenue growth.

Overall, we finished the year with an adjusted operating loss of ‚£1.4 millionin Germany. With a full year of cost savings of Germany in 2007, we expectthis business to be able to sustain low to mid-single digit margins in thefuture. INTERNATIONAL % Growth % Growth FY'05 FY'05 FY'06 on FY'06 onRevenue by market sector FY'06 ‚£'m ‚£'m FY'05 FY'05 ‚£'m Pro forma Actual Pro forma Actual Public sector 31.6 25.0 21.3 26.4

Industry, distribution & transport 36.6 30.8 24.3 18.8

Energy & utilities 169.1 175.7 143.7 (3.8) Financial services 47.3 43.6 42.0 8.5 Telecommunications 51.0 27.7 25.5 84.1 Total 335.6 302.8 256.8 10.8 30.7 Outsourcing % 33 40 39 Adjusted operating margin % 5.7 3.2 3.0

In line with changes to the way we manage the business, we are now reporting revenue from the rest of Europe within the "International" segment.

Revenue growth in 2006 was up 10.8% on last year on a pro forma basis. Adjusted operating margin was 5.7%, up 2.5% on a pro forma basis compared to last year, reflecting stronger margins in Asia and the rest of Europe.

In this group of businesses, Iberia continues to be the largest, representing just over a third of International revenue in 2006. Our contract with EDP continues to represent our largest revenue stream in the region but we grew our telecoms revenue in 2006 with a significant BPO win at ONI Telecom. While our headcount has remained broadly stable at around 1,500, we have reduced the number of subcontractors. This, along with improved utilisation and renegotiation of supplier contracts, contributed to improved margins.

Significant highlights in our Belgian business in 2006 were the improved profitability and the award of contracts for applications outsourcing for InBev's operations in Western and Eastern Europe, which will be managed from our Belgian operations and delivered across 17 countries.

In the Middle East, major revenue drivers continue to be Financial services and the Public sector. We were awarded a major transformation project with the National Bank of Kuwait in 2006 which was a significant contributor to revenue growth in the region.

Our contract with telecoms operator Natrindo led to very strong revenue growth in Asia in 2006. Margins improved through the year with the shift from more product-based to more services-based delivery. Overall, the Asian market became more competitive during the year as offshore players increased their presence in the region and recruitment became more challenging. We continue to see opportunities for Telecoms and Financial services through the region which will offset a significant reduction in revenue from Natrindo, in line with the expected phasing of the contract.

Our Australian business continued to perform well on both revenue and operating margin levels, with the employee base increasingly focused on high value-added work. Solid growth was evident in the Energy and utilities sector (up 10% on a pro forma basis) and IDT (up 6.1% on a pro forma basis). We expect deregulation and a growing resources industry to continue to drive spending in Energy and utilities. Slower Public sector revenue growth ahead of a likely election will be offset by growth in IDT in 2007 as we begin delivering against recently awarded contracts.

Board and management changes

Crister Stjernfelt joined on the Board and Executive Committee on completion of the WM-data acquisition. With the expected retirement of Helmut Mamsch following the 2007 annual general meeting, we will appoint Wim Dik as Deputy Chairman and Senior Independent Director. Two new Non-Executive Directors - Noel Harweth and Wolfhart Hauser - who bring commercial and international experience to our Board were also confirmed in January 2007.

We have also made a number of changes to our Executive Committee members. Joe Hemming, previously head of our UK Space and Defence business, has joined the Executive Committee, to lead the UK business. John Coleman assumes incremental responsibility for the "Rest of Europe" which is now reported within the "International" segment. Nick Caplan has been appointed Chief Marketing Officer and will lead our focus on account management, in addition to his previous responsibility for our International Lines of Business (ILOBs).

Accounting and other matters

Due to the short time period between the date of acquisition of Unilog and the date of approval of the 2005 consolidated financial statements, no amortisation charge for certain intangible assets was recognised within the share of post-tax profits from associates in 2005. As a consequence, the 2005 comparatives have been restated to show a reduction of ‚£0.8 million (net of tax) in the share of post-tax profits from associates.

In addition, following the acquisition of Edinfor in 2005, the prior year comparatives have been restated to reflect the actual fair values on acquisition. This resulted in a decrease in the share of net assets acquired of ‚£2.0 million.

During the year, we re-organised the management of our business to combine the Rest of Europe business and Rest of World business. As such, we will be reporting these as one operation called International. Following the acquisition of WM-data, the LogicaCMG Nordics operations (previously reported as part of the Rest of Europe business) is now included in the Nordics business.

On 20 February 2007, the group announced the disposal of the Telecoms products business. The group will report the results of Telecoms products as a discontinued operation in 2007.

Under the terms of the WM-data acquisition, lock up arrangements were agreed with Investor AB and Thord Wilkne. Investor AB received 66,752,225 LogicaCMG shares, and Thord Wilkne received 25,650,000 LogicaCMG shares as part of the WM-data acquisition. Each of Investor AB and Thord Wilkne entered into agreements with LogicaCMG restricting their ability to dispose of these shares for a certain period following completion. Investor AB undertook not to dispose of 62.5% of its total holding of 66,752,225 LogicaCMG shares for a period of twelve months from completion of the Acquisition. Thord Wilkne undertook not to dispose of 62.5% of his total holding of 25,650,000 LogicaCMG Shares for a period of twelve months from completion.

As part of the Unilog acquisition, a number of Unilog management shareholders, including Gĩrard Philippot and Didier Herrmann, entered into a lock up agreement with respect to the shares they received as part of the transation. Gĩrard Philippot received 8,611,532 shares and agreed that he would not dispose of any of his shares until 3 March 2007. Didier Herrmann received 7,376,495 shares and agreed that these would be locked-up for a period of one year after completion of the Tender Offer (which occurred on 10 January 2006). At the end of this period, he would be entitled to sell up to one third of the shares, with the remaining two thirds of the shares to remain locked up until the expiry of two years after completion of the Tender Offer.

Cash flow and debt

Cash generated from operations was ‚£216.8 million. The net cash inflow from trading operations was ‚£250.4 million, giving a cash conversion of 115% (2005: 149%).

Group net debt at 31 December 2006 was ‚£557.1 million, compared to ‚£96.1 million at 31 December 2005. The increase in net debt during 2006 reflects the completion of the Unilog transaction as well as a draw down on the debt facility used to finance the WM-data acquisition.

Dividend

The directors have proposed a final dividend of 3.4 pence per share to be paid on 25 May to shareholders on the register at the close of business on 27 April 2007. Following the restatement of 2005 interim dividend to reflect the bonus element of the rights issue, this year's total dividend of 5.6 pence per share represents a 5.5% increase on last year.

Consolidated income statement

For the year ended 31 December 2006

Restated 2006 2005 Note ‚£'m ‚£'m Continuing operations: Revenue 4 2,665.2 1,834.1 Net operating costs (2,509.4) (1,714.0) Operating profit 155.8 120.1 Analysed as: Operating profit before exceptional items 4 179.7 120.7 Exceptional items 5 (23.9) (0.6) Operating profit 4 155.8 120.1 Finance costs (35.9) (24.2) Finance income 9.2 7.5 Share of post-tax profits from associates 0.3 1.4 Profit before tax 129.4 104.8 Taxation 8 (40.3) (36.0) Profit for the year from continuing operations 89.1 68.8 Discontinued operation: Result from discontinued operation 9 - - Net profit for the year 89.1 68.8 Attributable to: Equity holders of the parent 82.0 65.8 Minority interests 7.1 3.0 89.1 68.8 Earnings per share from all operations p / share p / share - Basic 11 6.7 7.3 - Diluted 11 6.7 7.3

Consolidated statement of recognised income and expense

For the year ended 31 December 2006

Restated 2006 2005 ‚£'m ‚£'m Exchange differences on translation of foreign operations (4.1) 6.4 Cash flow hedges: - losses on cash flow hedges taken to equity - (1.2) - transferred to carrying amount of investment in associate - 1.2 - transferred to income statement on settlement (2.0) - Actuarial gains on defined benefit plans 17.5 12.0 Tax on items taken directly to equity (3.9) (4.2) Net income recognised directly in equity 7.5 14.2 Profit for the year 89.1 68.8 Total recognised income and expense for the year 96.6 83.0 Attributable to: Equity holders of the parent 89.4 80.7 Minority interests 7.2 2.3 96.6 83.0 Effects of changes in accounting policies Attributable to equity holders of the parent - increase in - 0.8retained earnings

Details of dividends paid and proposed are disclosed in note 10.

Consolidated balance sheet31 December 2006 Restated 2006 2005 ‚£'m ‚£'m Non-current assets Goodwill 1,552.1 385.4 Other intangible assets 415.1 25.3 Property, plant and equipment 136.6 102.5 Investments in associates 6.0 304.7 Financial assets 10.1 9.1 Retirement benefit assets 18.7 15.3 Deferred tax assets 50.6 36.0 2,189.2 878.3 Current assets Inventories 2.9 2.4 Trade and other receivables 1,070.2 648.2 Current tax assets 31.2 21.2 Cash and cash equivalents 177.3 245.3 1,281.6 917.1 Current liabilities Convertible debt (202.4) (205.0) Other borrowings (33.1) (18.5) Trade and other payables (886.4) (453.1) Current tax liabilities (32.3) (14.2) Provisions (20.8) (6.7) (1,175.0) (697.5) Net current assets 106.6 219.6 Total assets less current liabilities 2,295.8 1,097.9 Non-current liabilities Borrowings (498.9) (117.9) Retirement benefit obligations (64.1) (77.9) Deferred tax liabilities (164.4) (56.3) Provisions (13.2) (8.3) Other non-current liabilities (0.8) (1.0) (741.4) (261.4) Net assets 1,554.4 836.5 Equity Share capital 153.6 114.6 Share premium account 1,097.0 1,084.8 Other reserves 12 274.4 (380.1) Total shareholders' equity 1,525.0 819.3 Minority interests 29.4 17.2 Total equity 1,554.4 836.5

Consolidated cash flow statement

For the year ended 31 December 2006

2006 2005 Note ‚£'m ‚£'m Cash flows from operating activities Net cash inflow from trading operations 250.4 180.8 Cash outflow related to property reorganisation expense - (0.8) Cash outflow related to restructuring and integration (33.6) (13.0)activities Cash generated from operations 13 216.8 167.0 Finance costs paid (27.9) (20.2) Income tax paid (38.5) (29.9) Net cash inflow from operating activities 150.4 116.9 Cash flows from investing activities Finance income received 5.6 3.5 Proceeds on disposal of property, plant and equipment 2.3 10.6 Purchases of property, plant and equipment (31.8) (30.2) Expenditure on intangible assets (19.6) (7.1) Acquisition of subsidiaries, net of cash acquired (380.9) (37.2) Acquisition of investment in an associate - (266.8) Disposal of subsidiaries 1.9 - Disposal of business - (1.1) Net cash outflow from investing activities (422.5) (328.3) Cash flows from financing activities Net (outflow) / proceeds from issue of new shares (2.0) 391.2 Proceeds from sale of nil paid rights / treasury shares by - 1.9ESOP trusts Purchase of treasury shares by ESOP trusts - (1.9) Proceeds from bank borrowings 506.6 242.8 Repayments of bank borrowings (225.0) (225.6) Repayments of finance lease principal (2.1) (3.7) Repayments of borrowings assumed in acquisitions (3.8) (11.3) Proceeds from other borrowings 0.4 - Repayments of other borrowings (0.4) (0.5) Dividends paid to the company's shareholders (61.1) (43.5) Dividends paid to minority interests (1.8) (0.9) Net cash inflow from financing activities 210.8 348.5 Net (decrease) / increase in cash and cash equivalents (61.3) 137.1 Cash and cash equivalents at the beginning of the year 14 245.3 106.6 Net (decrease) / increase in cash and cash equivalents 14 (61.3) 137.1 Effect of foreign exchange rates 14 (6.7) 1.6 Cash and cash equivalents at the end of the year 14 177.3 245.3 Accounting policies Basis of preparation

The financial information in this preliminary announcement has been extracted from the group's consolidated financial statements for the year ended 31 December 2006. The group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU') at 31 December 2006, and those parts of the Companies Act 1985 ('the Act') that remain applicable to companies reporting under IFRS.

The consolidated financial statements have been prepared under the historical cost convention with the exception of certain items which are measured at fair value, as disclosed in the accounting policies below.

This preliminary announcement was approved by the Board of directors on 27 February 2007. The financial information in this preliminary announcement does not constitute the statutory accounts of LogicaCMG plc ('the company') within the meaning of section 240 of the Act.

The statutory accounts of the company for the year ended 31 December 2006, which include the group's consolidated financial statements for that year, were unaudited at the date of this announcement. The auditor's report on those accounts is expected to be signed following approval by the Board of Directors on 29 March 2007 and subsequently delivered to the Registrar of Companies after the Annual General Meeting on 24 May 2007. The statutory accounts for the year ended 31 December 2005, which were prepared under IFRS, have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain a statement under section 237(2) and 237(3) of the Act.

Basis of consolidation

The consolidated financial statements include those of the company and all of its subsidiary undertakings (together, 'the group'), and the group's share of the results of associates and joint ventures. Investments in associates and joint ventures are accounted for using the equity method.

Subsidiary undertakings are those entities controlled directly or indirectly by the company. Control arises when the company has the ability to direct the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or sold are included in the consolidated income statement from the date of acquisition or up to the date of disposal respectively, using the same accounting policies as those of the group. All business combinations are accounted for using the purchase method.

On acquisition, the interest of any minority shareholders is stated at the minority's proportion of the fair value of the assets and liabilities recognised. Subsequently, the minority interest in the consolidated balance sheet reflects the minority's proportion of changes in the net assets of the subsidiary. A minority interest is not recognised in a subsidiary with net liabilities except to the extent that the minority has a binding obligation, and is able to make an additional investment, to cover cumulative losses.

All intercompany transactions and balances are eliminated on consolidation.

Non-current assets held for sale and discontinued operations

Non-current assets and disposal groups are classified as held for sale in the balance sheet if their carrying amount will be recovered through a sale transaction rather than ongoing use but only if the sale is highly probable and is expected to complete within one year from the date of classification. Non-current assets and disposal groups held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

The results of an operation that represents a separate major line of business and either has been disposed of during the period or is classified as held for sale, are classified as discontinued operations. The post-tax profit or loss of the discontinued operation plus the post-tax gain or loss recognised on the measurement of the assets and liabilities within the disposal group at fair value less costs to sell, is presented as a single amount on the face of the income statement.

Intangible assets

All intangible assets, except goodwill, are stated at cost less accumulated amortisation and any accumulated impairment losses. Goodwill is not amortised and is stated at cost less any accumulated impairment losses.

Goodwill

Goodwill represents the excess of the cost of acquisition over the fair value of the group's interest in the identifiable assets, liabilities and contingent liabilities acquired in a business combination and the excess of the consideration paid for an increase in stake in an existing subsidiary over the share of the carrying value of net assets acquired. Goodwill previously written off directly to reserves under UK GAAP prior to 1 January 1998 has not been reinstated and is not recycled to the income statement on the disposal of the business to which it relates.

Development costs

Expenditure incurred in the development of software products or enhancements, and their related intellectual property rights, is capitalised as an intangible asset only when the future economic benefits expected to arise are deemed probable and the costs can be reliably measured. Development costs not meeting these criteria, and all research costs, are expensed in the income statement as incurred. Capitalised development costs are amortised on a straight line basis over their useful economic lives once the related software product or enhancement is available for use.

Accounting policies (continued)

Other intangible assets

Intangible assets purchased separately, such as software licences that do not form an integral part of related hardware, are capitalised at cost and amortised over their useful economic life. Intangible assets acquired through a business combination are initially measured at fair value and amortised over their useful economic lives.

The useful economic lives of the other intangible assets are as follows:

Brand names 3 - 5 years Customer contracts and relationships 1 - 10years

Purchased computer software 3 years Software products recognised on acquisition 3 - 7 years

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any costs directly attributable to bringing the asset into use.

Depreciation is calculated on a straight-line basis to write down the assets to their estimated residual value over their useful economic lives at the following annual rates:

Furniture 10 - 20% Computer equipment 25 - 33%

Partitions and office equipment 10 - 20% Motor vehicles 25%

Freehold property 2% Leasehold equipment and plant Life of lease

The residual values and useful economic lives of property, plant and equipment are reviewed annually. Freehold land and properties under construction are not depreciated. Borrowing costs related to the purchase of fixed assets are not capitalised.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are initially recognised as property, plant and equipment at an amount equal to the fair value of the leased assets or, if lower, the present value of minimum lease payments at the inception of the lease, and then depreciated over their useful economic lives. Lease payments are apportioned between repayment of capital and interest. The capital element of future lease payments is included in the balance sheet as a liability. Interest is charged to the income statement so as to achieve a constant rate of interest on the remaining balance of the liability.

Rentals payable under operating leases are charged to the income statement on a straight-line basis over the lease term. Operating lease incentives are recognised as a reduction in the rental expense over the lease term.

Impairment of assets

Goodwill is allocated to cash-generating units for the purposes of impairment testing. The recoverable amount of the cash-generating unit to which the goodwill relates is tested annually for impairment or when events or changes in circumstances indicate that it might be impaired. The carrying values of property, plant and equipment, investments measured using a cost basis and intangible assets other than goodwill are reviewed for impairment only when events indicate the carrying value may be impaired.

In an impairment test, the recoverable amount of the cash-generating unit or asset is estimated to determine the extent of any impairment loss. The recoverable amount is the higher of fair value less costs to sell and the value in use to the group. An impairment loss is recognised to the extent that the carrying value exceeds the recoverable amount.

In determining a cash-generating unit's or asset's value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the cash-generating unit or asset that have not already been included in the estimate of future cash flows.

Inventories

Inventories represent computer equipment that, at the balance sheet date, had not yet been allocated to a specific customer contract and materials, including work-in-progress, used in document printing and finishing.

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the first-in-first-out (FIFO) method. Net realisable value represents the estimated selling price less costs to be incurred in marketing, distribution and sale.

Amounts recoverable on contracts

Amounts recoverable on contracts represent revenue which has not yet been invoiced to customers on fixed price contracts. Such amounts are separately disclosed within trade and other receivables. The valuation of amounts recoverable on contracts is adjusted to take up profit to date or foreseeable losses in accordance with the group's accounting policy for profit recognition.

Accounting policies (continued)

Financial instruments

The following policies for financial instruments have been applied in the preparation of the consolidated financial statements.

Cash and cash equivalents

For the purpose of preparation of the cash flow statement, cash and cash equivalents include cash at bank and in hand, and short-term deposits with an original maturity period of three months or less. Bank overdrafts that are an integral part of a subsidiary's cash management are included in cash and cash equivalents where they have a legal right of set-off against positive cash balances, otherwise bank overdrafts are classified as borrowings.

Trade and other receivables

Trade and other receivables are stated at amounts receivable less any provision for recoverability. A trade or other receivable is derecognised from the balance sheet when the group enters into a financing transaction which transfers to a third party all significant rights or other access to benefits relating to that asset, and all significant exposures to the risks inherent in that asset.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated either at amortised cost or, if designated as such, at fair value through profit or loss.

For borrowings stated at amortised cost, any difference between the proceeds, net of transaction costs, and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest rate method.

The group's euro-denominated convertible bonds have been designated as a financial liability at fair value through profit or loss. The change in the fair value of the convertible bonds that reflects the movement in the quoted market price of the convertible bonds is recognised in the income statement as either interest income or expense. The change in fair value relating to the movement of the exchange rate between the euro and pounds sterling is treated as a hedge of net investments in foreign operations (see below). Foreign exchange gains and losses on the convertible bonds are taken directly to equity to the extent that the hedge is effective.

Derivative financial instruments and hedging activities

Derivatives are initially recognised at fair value on the date a contract is entered into and are subsequently re-measured at fair value. The fair values of derivatives are measured using observable market prices or, where market prices are not available, by using discounted expected future cash flows at prevailing interest rates and exchange rates. The gain or loss on re-measurement is taken to the income statement except where the derivative is part of a designated cash flow hedge or a designated hedge of a net investment in a foreign operation.

The effective portion of changes in the fair value of derivatives that are designated and qualify as a cash flow hedge of a firm commitment or forecasted transaction are recognised directly in equity. The gain or loss relating to the ineffective portion of a cash flow hedge is recognised immediately in the income statement.

If the cash flow hedge results in the recognition of an asset or liability, then the associated gains or losses on the derivative that had previously been recognised in equity are included in the measurement of the asset or liability at the time the asset or liability is recognised. For cash flow hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are transferred to the income statement in the same period as the underlying transaction occurs.

Where the group hedges net investments in foreign entities through currency borrowings or derivative financial instruments, the gains or losses on the translation of the borrowings or change in fair value of the derivative are recognised in equity. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of.

Changes in the fair value of derivative financial instruments that are not designated as hedging instrument or do not qualify for hedge accounting are recognised in the income statement as they arise. Changes in the fair value of derivatives or other hedging instruments transacted as hedges of financial items are recognised in finance costs / income in the income statement as they arise.

Taxation

Current tax is recognised based on the amounts expected to be paid or recovered under the tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

Deferred tax is provided in full on temporary differences that arise between the carrying amounts of assets and liabilities for financial reporting purposes and their corresponding tax bases. Liabilities are recorded on all temporary differences except in respect of investments in subsidiaries and joint ventures where the timing of the reversal of the temporary difference is controlled by the group and it is probable that it will not reverse in the foreseeable future.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the asset can be offset.

Deferred tax is measured on an undiscounted basis using the tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

Accounting policies (continued)

Current and deferred tax are recognised in the income statement, except when the tax relates to items charged or credited directly to equity, in which case the tax is also dealt with directly in equity.

Provisions

Provisions are recognised for restructuring costs when the group has a detailed formal plan for the restructuring that has been communicated to affected employees. Provisions are recognised for future committed property lease payments when the group receives no benefit from the property through continuing usage and future receipts from any sub-letting arrangements are not in excess of the group's future committed payments.

Where the time value of money is material, provisions are measured at the present value of expenditures expected to be paid in settlement.

Foreign currencies

The presentation currency of the group is pounds sterling.

Items included in the separate financial statements of group entities are measured in the functional currency of each entity. Transactions denominated in foreign currencies are translated into the functional currency of the entity at the rates prevailing at the dates of the individual transactions. Foreign currency monetary assets and liabilities are translated at the rates prevailing at the balance sheet date. Exchange gains and losses arising are charged or credited to net operating costs or finance costs / income in the income statement as appropriate, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

The income statement and balance sheet of foreign entities are translated into pounds sterling on consolidation at the average rates for the period and the rates prevailing at the balance sheet date respectively. Exchange gains and losses arising on the translation of the group's net investment in foreign entities, and of borrowings designated as hedges of such investments, are recognised as a separate component of shareholders' equity. On disposal of a foreign entity, the cumulative translation differences are recycled to the income statement and recognised as part of the gain or loss on disposal.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the rates prevailing at the balance sheet date.

The most important foreign currency for the group is the euro. The relevant exchange rates to pounds sterling were:

2006 2005 Average Closing Average Closing ‚£1 = ¢â€š¬ 1.47 1.48 1.46 1.46 Government grants

Grants related to assets are recognised initially as deferred income and subsequently credited to the income statement on the same basis that the related assets are depreciated. Grants related to income are credited to the income statement over the periods necessary to match them with the related costs which they are intended to compensate.

Revenue and profit recognition

Revenue represents the fair value of consideration received or receivable from clients for goods and services provided by the group, net of discounts, VAT and other sales-related taxes. Where the time value of money is material, revenue is recognised as the present value of the cash inflows expected to be received from the customer in settlement.

Revenue from the sale of software products or hardware with no significant service obligation is recognised 100 per cent on delivery. Revenue from the sale of software products or hardware requiring significant modification, integration or customisation is recognised using the percentage of completion method.

The revenue and profit of contracts for the supply of professional services at predetermined rates is recognised as and when the work is performed, irrespective of the duration of the contract.

The revenue and profit of fixed price contracts is recognised on a percentage of completion basis when the outcome of a contract can be estimated reliably. A contract's outcome is usually deemed to be capable of reliable estimation at the earlier of six months from contract commencement and the date at which 50 per cent of the total estimated costs of professional services have been incurred. If a contract outcome cannot be estimated reliably, revenues are recognised equal to costs incurred, to the extent that costs are expected to be recovered. The stage of contract completion is usually determined by reference to the cost of professional services incurred to date as a proportion of the total estimated cost of professional services. Where a contract contains multiple elements, the individual elements are accounted for separately where appropriate.

Provision is made for all foreseeable future losses.

Accounting policies (continued)

Segment reporting

At 31 December 2006, LogicaCMG was organised into two business segments: IT services and telecoms products. These two business segments are the group's primary reporting format for segment information as they represent the dominant source and nature of the group's risks and returns. The group's secondary reporting format is by geographical area.

Inter-segment sales are charged at arms' length prices. Segment revenue for secondary reporting is allocated based on the country in which the customer is located. Segment assets include all intangible assets, property, plant and equipment, inventories, trade and other receivables, and cash and cash equivalents but exclude tax assets. Segment liabilities comprise mainly trade and other payables, retirement benefit obligations and certain borrowings that can be attributed to the segment but exclude tax liabilities and borrowings that are for general corporate purposes. Capital expenditure comprises additions to property, plant and equipment and intangible assets. Total assets are allocated based on where the assets are located.

Exceptional items

Exceptional items fall within the operating activities of the group but are identified as exceptional items by virtue of their size, nature or incidence. These items are disclosed in aggregate on the face of the income statement to aid an understanding of the group's financial performance.

Employee benefitsRetirement benefits

The group operates retirement benefit plans of both a defined contribution and defined benefit nature. Retirement benefit plans that are funded by the payment of insurance premiums are treated as defined contribution plans unless the group has an obligation either to pay the benefits directly when they fall due or to pay further amounts if assets accumulated with the insurer do not cover all future employee benefits. In such circumstances, the plan is treated as a defined benefit plan.

The cost of defined contribution plans is charged to the income statement on the basis of contributions payable by the group during the year.

For defined benefit plans, the defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The retirement benefit liability in the balance sheet represents the present value of the defined benefit obligation as reduced by the fair value of plan assets and unrecognised past service cost. A retirement benefit asset is recognised to the extent that the group can benefit from refunds or a reduction in future contributions.

Insurance policies are treated as plan assets of a defined benefit plan if the proceeds of the policy:

can only be used to fund employee benefits;

are not available to the group's creditors; and

either cannot be paid to the group unless the proceeds represent surplus assets not needed to meet all the benefit obligations or are a reimbursement for benefits already paid by the group.

Insurance policies that do not meet the above criteria are treated as non-current investments and are held at fair value in the balance sheet.

The current service cost is recognised in the income statement as an employee benefit expense. The interest cost, resulting from the increase in the present value of the defined benefit obligation over time and the expected return on plan assets, is recognised as net interest expense or income. The expected return on plan assets is, for UK defined benefit pension schemes, shown net of an expected reduction for payments to the Pension Protection Fund (the 'PPF levy'). The difference between the actual and expected PPF levy is treated as an actuarial gain or loss.

A past service cost is recognised immediately to the extent that benefits are already vested, or is otherwise amortised on a straight-line basis over the average period until the benefits become vested.

Actuarial gains and losses arising from experience adjustments or changes in actuarial assumptions are charged or credited in the statement of recognised income and expense in the period in which they arise.

Share-based payment

The cost of share-based employee compensation arrangements, whereby employees receive remuneration in the form of shares or share options, is recognised as an employee benefit expense in the income statement.

The total expense to be apportioned over the vesting period of the benefit is determined by reference to the fair value at the grant date of the shares or share options awarded and the number that are expected to vest. The assumptions underlying the number of awards expected to vest are subsequently adjusted to reflect conditions prevailing at the balance sheet date. At the vesting date of an award, the cumulative expense is adjusted to take account of the awards that actually vest.

1. Accounting policies (continued)

Short-term compensated absences

A liability for short-term compensated absences, such as holiday, is recognised for the amount the group may be required to pay as a result of the unused entitlement that has accumulated at the balance sheet date.

Death-in-service benefits

Insured death-in-service benefits are accounted for as defined contribution arrangements. Death-in-service benefits for which the group does not have insurance cover are accounted for as defined benefit arrangements.

Employee share ownership trusts

Employee share ownership plan ('ESOP') trusts, which purchase and hold ordinary shares of the company in connection with certain employee share schemes, are consolidated in the group financial statements. Any consideration paid or received by ESOP trusts for the purchase or sale of the company's own shares is shown as a movement in shareholders' equity.

Dividends

Dividends to the company's shareholders are recognised as a liability and deducted from shareholders' equity in the period in which the shareholders' right to receive payment is established.

Adoption of new and revised International Financial Reporting Standards

The accounting policies adopted in these consolidated financial statements are consistent with those of the annual financials statements for the year ended 31 December 2005, except as described in the first paragraph below:

The following standards, amendments to and interpretations of published standards are mandatory for accounting periods beginning on or after 1 January 2006 but had no material impact on the consolidated financial statements:

- IFRIC 4 'Determining whether an arrangement contains a lease'.

- Amendment to IAS 21 'The Effects of Changes in Foreign Exchange Rates' - Net Investment in a Foreign Operation.

- Amendments to IAS 39 'Financial Instruments: Recognition and Measurement' - Cash flow hedge accounting of forecast intra-group transactions.

The following standards, amendments to and interpretations of published standards are mandatory for accounting periods beginning on or after 1 January 2006 but are not relevant to and had no effect on the group's operations:

- IFRS 6 'Exploration for and Evaluation of Mineral Resources'.

- IFRIC 5 'Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds'.

- FRIC 6 'Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment'.

- Amendments to IAS 39 'Financial Instruments: Recognition and Measurement' and IFRS 4 'Insurance Contracts'.

- Amendments to IFRS 1 'First-time Adoption of International Financial Reporting Standards' and IFRS 6 'Exploration for and Evaluation of Mineral Resources'.

The following new standards, amendments to standards and interpretations have been issued but are not effective for 2006 and have not been early adopted:

- IFRS 7 'Financial Instruments: Disclosures', effective for annual periods beginning on or after 1 January 2007. The main impact on the group will be additional disclosures.

- IFRS 8 'Operating Segments', effective for annual periods beginning on or after 1 January 2009. The group is currently considering adopting the standard early. The main impact would be that operating segments would be identified, and segment information provided, on the same basis as is used internally 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 group financial statements, together with an explanation of any differences in measurement basis.

- IFRIC 7 'Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies', effective for annual periods beginning on or after 1 March 2006. No significant impact on the consolidated financial statements is expected.

- IFRIC 8 'Scope of IFRS 2', effective for annual periods beginning on or after 1 May 2006. No significant impact on the consolidated financial statements is expected.

- IFRIC 9 'Reassessment of embedded derivatives', effective for annual periods beginning on or after 1 June 2006. Management believes that this interpretation should not have a significant impact on the reassessment of embedded derivatives as the group already assessed if embedded derivatives should be separated using principles consistent with IFRIC 9.

- Amendment to IAS 1 'Presentation of Financial Statements' - Capital disclosures, effective for annual periods beginning on or after 1 January 2007. The main impact on the group will be additional disclosures.

Key areas of estimation uncertainty

In preparing the consolidated financial statements, management has to make judgements on how to apply the group's accounting policies and make estimates about the future. The critical judgements that have been made in arriving at the amounts recognised in the consolidated financial statements and the key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities in the next financial year, are discussed below.

Key areas of estimation uncertainty (continued)

Revenue recognition

The revenue and profit of fixed price contracts is recognised on a percentage of completion basis when the outcome of a contract can be estimated reliably. Management exercises judgement in determining whether a contract's outcome can be estimated reliably. Management also makes estimates of the total cost of professional services, or in some instances total contract costs, which are used in determining the value of amounts recoverable on contracts. Estimates are continually revised based on changes in the facts relating to each contract.

Impairment of goodwill

The determination of whether or not goodwill has been impaired requires an estimate to be made of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation includes estimates about the future financial performance of the cash-generating units, including management's estimates of long-term operating margins and long-term growth rates.

Defined benefit plans

The calculation of the defined benefit obligation of a defined benefit plan requires estimation of future events, for example salary and pension increases, inflation and mortality rates. In the event that future experience does not bear out the estimates made in previous years, an adjustment will be made to the plan's defined benefit obligation in future periods which could have a material effect on the group.

Income taxes

In recognising income tax assets and liabilities, management makes estimates of the likely outcome of decisions by tax authorities on transactions and events whose treatment for tax purposes is uncertain. Where the final outcome of such matters is different, or expected to be different, from previous assessments made by management, a change to the carrying value of income tax assets and liabilities will be recorded in the period in which such a determination is made. The carrying values of income tax assets and liabilities are disclosed separately in the consolidated balance sheet.

Restatement of balance sheet at 31 December 2005 and income statement for the year ended 31 December 2005

Following the provisions of IFRS 3 'Business combinations' which permit the group 12 months to finalise the fair values of the net assets acquired, the provisional fair values for the Edinfor acquisition (acquired on 20 April 2005) were finalised. As a result, the group's share of the fair value of net assets acquired decreased by ‚£2.0 million and the goodwill increased by the same amount, compared to the amounts previously reported at 31 December 2005. The decrease of ‚£2.0 million is analysed as follows:

‚£'m Investments in associates (0.1) Trade and other receivables (1.0) Trade and other payables (2.3) (3.4) Minority interests 1.4 Decrease in share of net assets acquired (2.0)

During 2005, the group purchased an associate interest in Unilog S.A. and its subsidiaries ('Unilog'). IAS 28 'Investments in Associates' requires that the group accounts for its share of the amortisation of the identifiable intangible assets of an associate based on their fair value at the date of the initial purchase.

Due to the short time period between the date of purchase of the associate interest in Unilog and the date of approval of the 2005 consolidated financial statements, the group's share of the post-tax profit of Unilog did not contain an amortisation charge for certain intangible assets, including brand names, customer contracts and relationships, and some software products. The fair values of these intangible assets were subsequently finalised in 2006 and a restatement of the share of the post-tax profit of Unilog for the period 25 October to 31 December 2005 has been made. The post-tax effect of the amortisation charge was to reduce the share of the post-tax profits from associates in the income statement by ‚£0.8 million and to reduce the carrying value of investment in associates in the balance sheet by the same amount.

Basic and diluted earnings per share decreased from 7.4 pence per share to 7.3 pence per share as a result of the above restatements. Adjusted earnings per share and diluted adjusted earnings per share did not change.

The effect of these restatements on shareholders' equity and total equity as at 31 December 2005 was as follows:

‚£'m Shareholders' equity at 31 December 2005 820.1 Decrease in share of post-tax profit from associates (0.8) Total shareholders' equity 819.3 Minority interests at 31 December 2005 18.6

Decrease in minority interest due to finalisation of fair values of Edinfor (1.4)

Total equity 836.5 Segment information At 31 December 2006, LogicaCMG was organised into two business segments: ITservices and telecoms products. These two business segments are the group'sprimary reporting format for segment information as they represent the dominantsource and the nature of the group's risks and returns. Segment revenue andprofit after tax under the primary reporting format are disclosed in the tablebelow. 2006 Total continuing Telecoms operations IT services products ‚£'m ‚£'m ‚£'m Revenue 2,420.7 244.5 2,665.2 Segment operating profit 141.9 13.9 155.8 Analysed as: Operating profit before exceptional items 165.8 13.9 179.7 Exceptional items (23.9) - (23.9) Operating profit 141.9 13.9 155.8 Finance costs (35.9) Finance income 9.2 Share of post-tax profits from associates 0.3 Profit before tax 129.4 Taxation (40.3) Profit after tax 89.1 2005 Restated Telecoms Total continuing IT products services operations ‚£'m ‚£'m ‚£'m Revenue 1,579.4 254.7 1,834.1 Segment operating profit 107.3 12.8 120.1 Analysed as: Operating profit before exceptional 106.8 13.9 120.7items Exceptional items 0.5 (1.1) (0.6) Operating profit 107.3 12.8 120.1 Finance costs (24.2) Finance income 7.5 Share of post-tax profits from associates 1.4 Profit before tax 104.8 Taxation (36.0) Profit after tax 68.8

The share of post-tax profits from associates in the years ended 31 December 2006 and 2005 was attributable to the IT services business segment.

The group manages the IT services business segment on a geographic basis. Additional voluntary disclosures, not required under IFRS, are provided below for the revenue and operating result before exceptional items of the geographic sub-divisions within the IT services business segment.

Operating profit / (loss) Revenue before exceptional items 2006 2005 2006 2005 ‚£'m ‚£'m ‚£'m ‚£'m United Kingdom 718.4 712.0 77.8 80.4 Nordics 190.5 5.5 5.9 (1.4) France 560.0 116.7 24.2 (4.9) Netherlands 447.6 409.6 44.2 37.9 Germany 168.6 78.8 (4.0) (11.8) International 335.6 256.8 17.7 6.6 2,420.7 1,579.4 165.8 106.8

Following the acquisition of WM-data in 2006, the tables above include a new Nordics category representing the group's business in the Nordic countries.

During 2005, the group's business in the Nordic countries was presented within a Rest of Europe category. This has resulted in revenue of ‚£5.5 million and an operating loss of ‚£1.4 million being reclassified to the new Nordics category from the Rest of Europe category.

In addition, the comparative information in the tables above has been amended so that the new International category includes the previously reported Iberia, Rest of Europe and Rest of World categories, with the exception described above.

Exceptional items

The exceptional items recognised within operating profit were as follows:

2006 2005 ‚£'m ‚£'m Restructuring and integration costs (32.9) -

Reduction in retirement benefit obligation due to harmonisation of plan 9.0 - rules

Profit on property sale and leaseback - 6.5 Property reorganisation expense - (7.1) (23.9) (0.6)

The group incurred a charge of ‚£32.9 million mainly relating to the restructuring of the businesses in France and Germany following the acquisition of Unilog and the closure of a building in the United States of America following the change of headquarters after the Worksuite acquisition. The restructuring comprised a reduction in headcount, vacated property and other measures to reduce the cost base.

During the year, the group harmonised the cash commutation rates used in the CMG UK pension scheme across the entire plan membership. The effect of applying the new cash commutation rates was a reduction in the defined benefit liability of ‚£9.0 million which has been recognised in full as an exceptional item.

In 2005, the group disposed of two long leasehold office buildings in the United Kingdom for net proceeds of ‚£8.3 million, simultaneously entering into an operating leaseback, generating a profit on disposal of ‚£6.5 million. The United Kingdom and telecoms products businesses incurred an expense for vacated property, early lease terminations and related transactions costs of ‚£7.1 million for property reorganisation activities conducted in the second half of 2005.

Adjusted operating profit

Adjusted operating profit excludes the results of discontinued operations, exceptional items and amortisation of intangible assets initially recognised at fair value in a business combination, whenever such items occur. Adjusted operating profit is not defined under IFRS and has been shown as the directors consider this to be helpful for a better understanding of the performance of the group's underlying business. It may not be comparable with similarly titled profit measurements reported by other companies and is not intended to be a substitute for, or superior to, IFRS measures of profit.

2006 2005 ‚£'m ‚£'m Operating profit 155.8 120.1 Exceptional items 23.9 0.6

Amortisation of intangible assets initially recognised on acquisition 37.6 1.0

Adjusted operating profit 217.3 121.7 Employees Year end Average 2006 2005 2006 2005 Number Number Number Number United Kingdom 6,073 5,951 6,083 6,079 Nordics 10,076 60 2,567 69 France 8,563 1,504 8,301 1,523 Netherlands 5,829 5,719 5,784 5,776 Germany 2,059 1,185 2,168 1,139 International 6,189 5,315 5,848 4,336 IT services 38,789 19,734 30,751 18,922 Telecoms products 1,694 1,606 1,674 1,657 40,483 21,340 32,425 20,579

Following the acquisition of WM-data in 2006, the tables above include a new Nordics category representing the group's business in the Nordic countries. During 2005, the group's business in the Nordic countries was presented within a Rest of Europe category. This has resulted in 60 employees at 31 December 2005 and an average of 69 employees during 2005 being reclassified to the new Nordics category from the Rest of Europe category.

In addition, the comparative information in the tables above has been amendedso that the new International category includes the previously reported Iberia,Rest of Europe and Rest of World categories, with the exception describedabove. Taxation 2006 2005 ‚£'m ‚£'m Current tax: UK corporation tax 21.2 14.8 Overseas tax 31.6 24.6 52.8 39.4 Deferred tax: UK corporation tax 2.4 (2.3) Overseas tax (14.9) (1.1) (12.5) (3.4) Tax charge from continuing operations 40.3 36.0

The effective tax rate on continuing operations for the year, before the share of post-tax profits from associates, exceptional items and amortisation of intangible assets initially recognised on acquisition was 28.5% (2005: 34.9%) of which ‚£23.6 million (2005: ‚£12.5 million) related to the United Kingdom. The effective tax rate for 2006 is lower than in 2005 primarily as the result of agreements reached with certain tax authorities in respect of prior years.

The effective tax rate on exceptional items was 7.1% (2005: 50%) and the effective tax rates on amortisation of intangible assets initially recognised on acquisition was 32.7% (2005: 30%).

The tax charge from continuing operations is higher than the standard rate ofcorporation tax in the UK applied to profit before tax. The differences areexplained below. 2006 2005 ‚£'m ‚£'m Profit before tax 129.4 104.8 Less: share of post-tax profits from associates (0.3) (1.4)

Profit before tax excluding share of post-tax profits from associates 129.1 103.4

Tax at the UK corporation tax rate of 30% (2005: 30%) 38.7 31.0 Adjustments in respect of previous years (7.3) (0.3) Adjustment for foreign tax rates 3.6 5.1 Tax loss utilisation (6.3) (4.1) Expenses / (income) not taxable / deductible for tax purposes 0.6 (5.2) Deferred tax assets not recognised 11.0 9.5 Tax charge from continuing operations 40.3 36.0

Discontinued operation and non-current assets held for sale

At 31 December 2004, the EPPIX billing platform business was classified as held for sale pending disposal of the business in early 2005. The disposal subsequently completed on 15 March 2005, on which date the control of the business passed to the acquirer. The discontinued operation was attributable to the telecoms products business segment.

The results of the discontinued operation were as follows:

2005 ‚£'m Revenue 1.8 Expenses (1.8) Result before and after tax -

There were no assets and liabilities held for sale at 31 December 2006 or 31 December 2005.

Dividends

The directors are proposing a final dividend in respect of the year ended 31 December 2006 of 3.40p per share, which would reduce shareholders' funds by approximately ‚£51.7 million. The proposed dividend is subject to approval at the Annual General Meeting on 24 May 2007 and has not been recognised as a liability in these financial statements. The final dividend will be paid on 25 May 2007.

Dividends (continued)

The amounts recognised as distributions to equity holders were as follows:

2006 2005 2006 2005 p / share p / share ‚£'m ‚£'m Interim dividend, relating to 2006 / 2005 2.20 2.11 24.9 17.7 Final dividend, relating to 2005 / 2004 3.20 3.08 36.2 25.8 5.40 5.19 61.1 43.5

Dividends payable to employee share ownership trusts are excluded from the amounts recognised as distributions in the table above.

Earnings per share 2006 Weighted average Earnings number per Earnings of share shares ‚£'m million pence Earnings per share from all operations Earnings attributable to ordinary shareholders 82.0 1,215.6 6.7 Basic EPS 82.0 1,215.6 6.7 Effect of share options and share awards - 15.5 - Effect of convertible bonds 4.3 64.6 - Diluted EPS 86.3 1,295.7 6.7 Adjusted earnings per share Earnings attributable to ordinary shareholders 82.0 1,215.6 6.7 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 Adjusted basic EPS 129.6 1,215.6 10.7 Effect of share options and share awards - 15.5 (0.2) Effect of convertible bonds, excluding mark-to-market 4.2 64.6 (0.2)loss, net of tax Adjusted diluted EPS 133.8 1,295.7 10.3 2005 Restated Weighted average Earnings number per Earnings of share shares ‚£'m million pence Earnings per share from all operations Earnings attributable to ordinary shareholders 65.8 898.7 7.3 Basic EPS 65.8 898.7 7.3 Effect of share options and share awards - 4.9 - Diluted EPS 65.8 903.6 7.3 Adjusted earnings per share 65.8 898.7 7.3 Earnings attributable to ordinary shareholders Add back: Exceptional items, net of tax 0.3 - - Mark-to-market loss on convertible bonds designated at fair value through profit or loss, net of tax 0.6 - 0.1 Amortisation of intangible assets initially recognised on acquisition, net of tax 0.7 - 0.1 Adjusted basic EPS 67.4 898.7 7.5 Effect of share options and share awards - 4.9 - Effect of convertible bonds, excluding mark-to-market 4.2 64.6 (0.1) loss, net of tax Adjusted diluted EPS 71.6 968.2 7.4

Earnings per share (continued)

On 13 October 2006 and 24 October 2006, the company issued 337,503,074 and 40,345,558 shares respectively to acquire a 95.33 per cent interest in WM-data. On the same dates, the company issued 8,318,096 and 697,713 shares to acquire a 96.48 per cent holding in WM-data convertible debentures.

In 2005, the group announced a rights issue to part fund the proposed acquisition of Unilog and 375,495,147 new ordinary shares of 10p each were issued at 107p per share on the basis of 1 new ordinary share for every 2 existing ordinary shares held. The weighted average number of shares for the year ended 31 December 2005 has been adjusted for the bonus element within the rights issue.

Adjusted earnings per share, both basic and diluted, have been shown as the directors consider this to be helpful for a better understanding of the performance of the group's underlying business. The earnings measure used in adjusted earnings per share excludes, whenever such items occur: the results of discontinued operations; exceptional items; mark-to-market gains or losses on financial assets and financial liabilities designated at fair value through profit or loss; and amortisation of intangible assets initially recognised at fair value in a business combination. All items adjusted are net of tax where applicable.

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 earnings per share for the year ended 31 December 2005 as they were anti-dilutive, however, the convertible bonds are dilutive for the purposes of calculating earnings per share for the year ended 31 December 2006 and adjusted diluted earnings per share for the year ended 31 December 2006 and 31 December 2005.

The impact of the charge for share-based payments was to reduce adjusted basic earnings per share for the year ended 31 December 2006 by 0.8p per share (2005: 0.7p per share).

Other reserves

The company issued 377,848,632 new ordinary shares during October 2006 to acquire a 95.33 per cent equity interest in WM-data. In respect of the issuance of those shares, the company has applied section 131 of the Act. Section 131 of the Act is applicable where a purchaser company acquires at least 90 per cent equity interest in an acquiree company under an arrangement which provides for the allotment of equity shares by the purchaser in return for the equity interest in the acquiree. When applicable, the section requires that the premium on the issue of equity shares by the purchaser company is disregarded. Accordingly, the company did not record a premium on the shares it issued to acquire WM-data. In the consolidated balance sheet a merger reserve of ‚£617.1 million has been recognised, representing the excess of the fair value over the nominal value of shares issued.

Reconciliation of operating profit to cash generated from operations

2006 2005 ‚£'m ‚£'m Operating profit from all operations 155.8 120.1 Adjustments for: Share-based payment expense 10.2 6.3 Depreciation of property, plant and equipment 32.7 30.4

Loss / (profit) on disposal of non-current assets and subsidiaries 1.0 (6.4)

Amortisation of intangible assets 46.0 5.9 Net movements in provisions 3.0 (5.9) Derivative financial instruments 0.6 (2.2) Defined benefit plans (13.4) (1.2) 80.1 26.9 Movements in working capital: Inventories 0.1 0.1 Trade and other receivables (46.3) (11.5) Trade and other payables 27.1 31.4 (19.1) 20.0 Cash generated from operations 216.8 167.0 Add back: cash outflow related to property reorganisation expense - 0.8 Add back: cash outflow related to restructuring activities 33.6 13.0 Net cash inflow from trading operations 250.4 180.8

13. Reconciliation of operating profit to cash generated from operations (continued)

In 2005, the cash flows from the discontinued operation were not material for the group and accordingly have not been presented separately. The reconciliation of operating profit to cash generated from operations in the table above represents the activities of both continuing and discontinued operations.

Reconciliation of movements in net debt

At Acquisitions Other At 1 and non-cash Exchange 31 January December Cash disposals* movements differences 2006 flows 2006 ‚£'m ‚£'m ‚£'m ‚£'m ‚£'m ‚£'m Cash and cash 245.3 (61.3) - - (6.7) 177.3equivalents Bank overdrafts - (9.0) (17.4) - - (26.4) Finance leases (4.8) 2.1 (0.8) (3.1) 0.1 (6.5) Bank loans (131.2) (272.6) (89.1) (1.7) (3.4) (498.0) Other loans (0.4) 3.8 (20.2) 15.6 0.1 (1.1) Convertible (205.0) - - (0.2) 2.8 (202.4)bonds Net debt (96.1) (337.0) (127.5) 10.6 (7.1) (557.1)

* Excludes cash and cash equivalents assumed on acquisition of businesses, amounting to ‚£133.0 million.

Acquisition of WM-data

On 13 October 2006, the group acquired a controlling 85.19 per cent interest in the ordinary share capital of WM-data, following the end of the initial offer acceptance period. The group's holding on the date of acquisition comprised 30,000,000 A shares and 327,992,973 B shares. Holders of WM-data A shares are entitled to ten votes per A share and holders of B shares are entitled to one vote per B share. Accordingly, the group held 90.98 per cent of the voting rights of WM-data on the date of acquisition. WM-data is a leading IT services provider based principally in the Nordic region whose activities include application development and management, outsourcing and industry-specific solutions, infrastructure solutions and industrial design and development.

The cost of the acquisition of ‚£745.9 million is analysed in the table below. The cost of acquisition included the issue of 337,503,074 ordinary shares of LogicaCMG plc. The ordinary shares issued were attributed a fair value based on the closing mid-market price prevailing on 13 October 2006 of 173.75 pence per share.

The provisional fair values of the identifiable assets and liabilities of WM-data on 13 October 2006 were as follows:

Carrying amount pre-acquisition Provisional fair value ‚£'m ‚£'m Net assets acquired: Intangible assets 62.8 274.1 Property, plant and equipment 23.0 23.0 Other non-current assets 11.1 11.7 Inventories 0.6 0.6 Trade and other receivables 186.4 186.4 Cash and cash equivalents 12.4 12.4 Trade and other payables (180.4) (181.6) Current tax 5.4 5.4 Borrowings (86.0) (92.8) Retirement benefit obligations (4.1) (5.1) Provisions (9.6) (13.5) Deferred tax 1.4 (54.6) 23.0 166.0 Minority interests (24.7) Share of net assets acquired 141.3 Goodwill 604.6 Total consideration 745.9 Total consideration comprised: Cash 149.2 New ordinary shares issued 586.4 Directly attributable costs 10.3 745.9

Acquisition of WM-data (continued)

The fair value adjustments contain some provisional amounts which will be finalised within 12 months from date of acquisition. The values of certain intangible assets, relating to brand names, customer contracts / relationships and software products were provisionally valued at ‚£270.6 million. The goodwill recognised of ‚£604.6 million is attributable to anticipated synergies and the value of the work force.

Increase in stake in WM-data

On 10 October 2006, the group announced that the offer acceptance period would be extended for a further seven days to 17 October 2006. The group acquired a further 10.14 per cent interest in the ordinary share capital of WM-data on 24 October 2006 following acceptances received during the extended period, bringing the group's aggregate holding to 95.33 per cent of the ordinary share capital of WM-data and 97.16 per cent of the voting rights.

The cost of the increase in stake in WM-data was ‚£86.0 million, which comprised the issue of 40,345,558 ordinary shares of LogicaCMG plc and a cash payment of ‚£17.5 million. The ordinary shares issued were attributed a fair value based on the closing mid-market price prevailing on 24 October 2006 of 169.75 pence per share.

The consideration paid to acquire the increased interest in WM-data is not included in the acquisition table above. The increase in stake in WM-data gave rise to additional goodwill of ‚£69.1 million and a reduction in minority interests of ‚£16.9 million.

Event after the balance sheet date

On 20 February 2007, the group announced the sale of the telecoms products business for ‚£265 million to an investment consortium led by Atlantic Bridge Ventures. The transaction reflects the group's strategic focus in developing as a major international IT and business services company. The transaction is subject to the necessary employee consultation and regulatory approval. Subject to these conditions being met, the group expects to return approximately ‚£130 million of the net proceeds to shareholders via a share buyback programme. The remaining net proceeds will be used to reduce debt and to fund the buy-out of some existing minority interests.

The group will provide transition services through 2007 to support the operations of the telecoms products business. A loan of ‚£15 million, representing the cash in the business on 31 December 2006, will be provided to fund working capital and is repayable two years from legal completion.

LOGICACMG PLC

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