14th Aug 2008 07:00
14 August 2008
Logica reports interim results for the six months ended 30 June 2008
Headlines
Good H1 performance with Group revenue up 6% and revenue growth in all geographies
Significant revenue and profitability improvement in UK
Adjusted operating profit up 16% to ‚£118 million
Cash conversion for the first half improved to 86%, with net debt at ‚£565 million at 30 June
4% increase in interim dividend to 2.4p
Increased FY 2008 revenue guidance
Progress on revitalising Logica on track
Key management appointments made in the first half Good progress in winning new orders, with book to bill at 105%
Nearshore and offshore headcount at 3,900, with Chennai centre to open in September
For the six months ended 30 June 2008, results were as follows:
Continuing Operations H1 2008 Actual H1 2007 Actual Growth Actual Pro Forma Revenue ‚£1,769m ‚£1,525m 16% 6% Adjusted operating profit ‚£118m* ‚£90m 31% 16% Adjusted operating margin 6.7%* 5.9% Basic adjusted EPS 5.4p* 4.0p 35% Dividend per share 2.4p 2.3p 4% Statutory results: Operating profit ‚£29m ‚£44m Profit before tax ‚£13m ‚£29m Basic EPS 0.4p 1.8p
* Before ‚£46 million of exceptional items (mainly associated with the plan torevitalise Logica) and ‚£43 million of amortisation of intangible assets as perexplanatory note 5 on page 16.
Commenting on today's announcement, Andy Green, CEO, said:
"We had a good first half. Growing momentum with customers led to revenuegrowth above the market in all our major geographies. Across the Group, we areseeing the early benefits of our common brand, values and culture, and a realsharing of expertise. We are on track in executing our plan. Over the last four months, we broughtin experienced new management talent, won a number of significant long termcontracts, transitioned work offshore, began to put the right organisation andincentives in place and initiated the cost savings required to fund ourinvestments. "Given the market environment, we remain alert to changes in customer sentimentbut our first half performance gives us increased confidence that 2008 proforma revenue growth will be closer to 4%, compared to our previous guidance ofaround 3%."
For further information, please contact:
Logica Media relations: Carolyn Esser/Louise Fisk +44 (0) 7841 602391/+44 (0) 7798 857 770
Logica Investor relations: Karen Keyes/Frances Gibbons +44 (0) 20 7446 1338/+44 (0) 7801 723682
Brunswick: Tom Buchanan/Craig Breheny +44 (0) 20 7404 5959
Financial overview - continuing operations
Group revenue was ‚£1,769 million, up 16% on a reported basis (2007 actual: ‚£1,525 million). This represented pro forma growth of 6%. Book to bill was105% (2007: 100%). Adjusted operating profit was ‚£118 million (2007 actual: ‚£90 million), representing an adjusted operating margin of 6.7% (2007 actual:5.9%). Basic adjusted EPS was 5.4p (2007 actual: 4.0p). Operating profit of ‚£29 million (2007 actual: ‚£44 million) reflected higher exceptional items(mainly associated with the plan to revitalise Logica) of ‚£46 million. Netcash inflow from trading operations was ‚£101 million in the first half, leadingan improvement in cash conversion to 86%. Closing net debt was ‚£565 million. The interim dividend is 2.4p, representing a 4% increase in line with ourprogressive dividend policy.
Outlook
In the second quarter, we announced and initiated our plan to revitalise Logicaand are on track with our progress to date. Our priorities for the second halfwill be improving our operational performance, building our management andsales capability, bringing further propositions to market in our high growthareas, increasing the strength of our Outsourcing Services business, targetingnew outsourcing deals and continuing to drive cost reduction and blendeddelivery. We remain confident that the implementation of the plan will allowus to deliver on the long term targets we set out in April. Our outlook for 2008 continues to be set against an uncertain economicenvironment. While we have seen incidences of slower spending in financialservices and with some consumer-driven customers, our markets have generallyremained positive in the first half. This has been reflected in revenue growthabove the market in all our major countries and our four largest market sectorsat Group level. Energy and Utilities and Public Sector spending in most of ourgeographies continues to be robust. In other sectors, a good pipeline isreflective of a slightly different mix, with some shift of customer spending todelivery of cost savings and projects driven by regulatory requirements. Based upon a good first half performance and a solid order backlog and pipelineof opportunities, we currently expect 2008 constant currency revenue growth tobe closer to 4% than to our previous guidance of around 3%. Margin guidanceremains unchanged at around the level of the 2007 underlying margin of 7.6%.
We remain alert to changes in customer sentiment and are monitoring recruitment closely. Our most significant short term lever remains flexible resourcing through the use of subcontractors and our blended delivery capability.
Improved first half cash flow contributed to a net debt/EBITDA ratio at the lower end of our guidance for 2008. Our convertible bonds will be redeemed from our existing banking facilities in September 2008 and we continue to expect net debt/EBITDA at the end of 2008 to be in the 1.9x to 2.1x range.
Programme for Growth: Progress on plan to revitalise Logica
Since announcing our plan in April, we have made good early progress in each ofthe components of our four-point plan and are on track to achieve our long
termtargets. Focus for GrowthWinning new business is a crucial component of the Programme for Growth. Wehave begun to redirect resource towards improving our sales and marketingcapability. In the first half, we committed to investments of ‚£8 million inthe focus for growth areas and have made important strides in three areas:
recruiting the right people to deliver growth; winning new orders; and outsourcing. We have appointed leaders in the focus for growth areas and defined therequirements for recruitment in consulting and account management. At the endof July, we announced leaders for our high growth and consulting practices whoare actively building teams to support them. We have also launched ourconsulting recruitment campaign, based on initially attracting senior businessdevelopers with the skill sets identified in April. We expect to increase thenumber of new joiners in a controlled manner as we go through 2008 and into2009.We have identified the key accounts that we intend to target, with accountmanagers in place or identified for most of these accounts, and recruitmentunderway for a further 14 roles. The strengthening of our account managementand sales capability is aimed at improving our penetration of major clients. Our top 10 customers accounted for 15% of Group revenue in the first half of2008 (2007: 16%) - with our largest single client accounting for around 2%. We are continuing to build our Outsourcing Services organisation. In additionto appointing a new Chief Executive for this activity, we have strengthened ouroutsourcing sales capability in the UK and Netherlands and added a number oflarge deal specialists. This will allow us to be better placed for largerprospects such as the system support component of the ¢â€š¬2.1 billion EuropeanSpace Agency (Galileo) procurement, for which we announced our intention to
bidin late July. All major countries saw success in winning long-term orders in the areas whichare the focus of our growth ambition, leading to improved order momentum in thefirst half of 2008. Book to bill for the Group was 105% in the first half witha good order performance in all our major geographies. This represented astrengthening over last year (2007: 100%). Wins included a significantextension of work with a major French financial services provider, a five yearcontract with KPN for maintenance of their network systems, a seven year ‚£12million contract with Wiltshire County Council for transformation of theorganisation's support services and a new five year ‚£40 million contract withElexon for electricity balancing and settlement systems. In the Nordics, astring of outsourcing wins contributed to a stronger book to bill. In the first half of 2008, revenue from outsourcing was 31% (2007: 31%). Whileit is too early to have generated significant order momentum, we have seenearly signs that the introduction of an Outsourcing Services sales team isgiving greater clarity of engagement with customers. As we strengthen theOutsourcing Services business, we expect to improve the book to bill foroutsourcing from its first half level of 102% and to increase the percentage ofrevenue delivered from long-term outsourcing. In addition to Michelin'sselection of Logica as its leading provider of applications services (announcedat the beginning of the third quarter), other wins have included an applicationoutsourcing contract with the Dutch Department of Immigration andNationalisation (IND) and a four year development programme with the FinnishState Treasury. Accelerate Blended Delivery
Headcount in our nearshore and offshore centres increased from 3,450 at the end of 2007 to over 3,900 at the end of June, with the largest increase (a net addition of almost 400) occurring in our centres in India. We are also continuing to grow our Moroccan capability and leverage this into French accounts.
We are seeing increased appetite for offshore in our Nordic and French markets. Increased numbers of larger bids now include an embedded offshore component. We had almost 1,300 offshore resources deployed on UK business at the end of the first half, compared to around 1,100 at the same time last year.
In the first half, we reviewed major bids to ensure we are maximising the useof offshore delivery. We have also identified around 500 jobs in existingprogrammes in areas (such as software development and application maintenance)which we will transition offshore over the coming months. Offshore targets arein place in all our major geographies and will be an important metric in ourrevised incentive plans. The strength of our brand is key in attracting the right talent. The number ofnew joiners in India has increased by around 90% when compared to the secondhalf of last year. Our second Indian centre in Chennai will be officiallyopened on 18 September, with around 100 employees already in place.
We expect to invest around ‚£8 million in this area in 2008.
One LogicaHaving the right team with the right incentives to deliver the plan iscrucial. We have strengthened the existing senior team, with three additionsto the Executive Commitee since the beginning of 2008. Craig Boundy has joinedas Chief Executive, Global Operations. Jean-Marc Lazzari will assume the roleof Chief Executive, Outsourcing Services, taking over from Jim McKenna wholeaves the company on 30 September. Joģo Baptista will start as ChiefExecutive, International, taking over from John Coleman who will move tostrengthen the UK management team in the role of Chief Operating Officer. Wehave appointed new CEOs in our Indian and Portuguese businesses. Another tensenior level joiners have also been recruited in the first half of 2008 inareas such as outsourcing sales, operations, HR and Finance. In the second half, our incentive plan (the Partnership Plan) aimed at up to250 top managers in the business will be rolled out through the Group, alongwith a global reward and recognition programme for all employees. We have initiated a review of our tools, processes and systems and are on trackor ahead on progress in all the programmes we set out in April. By the end of2008, we expect to have standardised and improved processes in place around bidand risk management, applications management and development and systemsintegration. A common process will also be in place across the Group foraccess to all nearshore and offshore resources. Having common back office functions shared across the Group will reduce costsand improve efficiency. The restructuring of our HR and Finance functions isunderway to standardise processes and tools and to move to a shared servicesenvironment by the end of 2009.
Finally, the existing Logica University has been extended to include a group-wide International Leadership Programme for account managers, practice leaders and senior sales leadership. This was launched in the second quarter.
Currently planned 2008 initiatives are expected to cost around ‚£2 million.
Competitive costsCost savings of ‚£5 million were delivered in the first half, mainly in relationto headcount reduction. The first half cost savings have been reinvestedacross the three areas outlined above. For the full year, cost savings will bein line with our April guidance of ‚£15 to 20 million, with expected investmentsof ‚£15 to 20 million.
The progress on shared service centres in the One Logica section above will deliver back office cost savings. The programme for rationalising and offshoring back office systems is underway and the first migration activities are scheduled to commence during 2008.
Changes in the UK business represent the largest component of the cost savingsplan. In the first half of the year, we initiated the rationalisation of ourUK property usage. A number of UK offices have already closed or will closeover the coming months as a result of these actions, with much of the businessmoving towards "smart working" and our corporate headquarters relocating toReading. We have begun consultations with employees affected by the propertyconsolidation. We currently expect an initial round of these consultations tobe completed by the end of the third quarter. Across the Group, we have identified areas where we will target additionalbenefits from group-wide procurement and have begun discussions withsuppliers. Our IT rationalisation has involved identifying a standard set ofsystems to be used throughout the Group. This will reduce external spend as aresult of consolidated procurement, achieve efficiencies due to reducedtraining and ease of working and reduce external and internal support costs. Our initial achievements have been focused on infrastructure and applicationrationalisation. We expect to incur one-off restructuring costs of ‚£110 million over 2008 and2009 to implement the plan. We have incurred ‚£41 million in the first half ofthe year, of which approximately ‚£6 million was a first half cash outflow.
The
first half costs reflect the early action taken to streamline organisationalstructures and consolidate real estate. These costs are expected to deliverapproximately 40% of the targeted 2010 annualised cost savings of ‚£80 million.
We continue to expect the 2008 charge to be in the order of ‚£70 million. The cash impact is still expected to be around ‚£40 to 45 million in 2008.
Operating performance - continuing operations
Revenue by geography Growth Growth H1'08 on H1'08 on H1'07 H1'07 H1'07 H1'07 H1'08 Pro forma Actual Pro forma Actual ‚£'m ‚£'m ‚£'m % % Nordics 497 462 424 8 17 UK 354 334 334 6 6 France 354 332 290 7 22 Netherlands 284 269 237 6 20 Germany 101 92 81 10 25 International 179 173 159 3 13 Total 1,769 1,662 1,525 6 16 First half revenue performance was on track, with all markets delivering proforma constant currency revenue growth. We returned to growth in the UK in thefirst half of 2008, with revenue up 6%. Growth in the UK Public Sector (whichcontinued to account for over half of UK revenue), was 7%. Our majorcontinental European geographies also performed well, with growth above themarket in France, Germany, the Netherlands and the Nordics.
Adjusted operating profit by geography
H1'07 H1'07 Pro forma H1'07 H1'08 H1'08 Pro forma Margin Actual ‚£'m Margin % ‚£'m % ‚£'m Nordics 42 8.4 42 8.8 38 UK 22 6.3 4 1.3 4 France 26 7.3 25 7.7 22 Netherlands 21 7.5 23 8.4 20 Germany 4 3.6 3 3.6 3 International 3 2.0 5 3.1 3 Total 118 6.7 102 6.1 90
Adjusted operating profit before exceptional items (mainly associated with theProgramme for Growth) and amortisation of intangibles initially recognised onacquisition was ‚£118 million. An ‚£18 million increase in adjusted operatingprofit in the UK more than offset a net decrease of ‚£2 million in othergeographies. Adjusted operating margin was 6.7%, with UK improvements the largestcontributor to a year on year increase. Individual country margins reflectedhigher levels of subcontracting to give greater cost structure flexibility andthe rebranding costs of ‚£5 million which were distributed among thegeographies. As expected, profit and margin did not benefit from the plan'sinitial cost savings, with the cost savings being fully reinvested into salesand blended delivery.
Operating profit by geography
H1'08 H1'07 H1'08 Adjusted Operating Operating Exceptional Amortisation operating profit profit items of intangibles profit ‚£'m ‚£'m ‚£'m ‚£'m ‚£'m Nordics 4 8 6 28 42 UK 4 (7) 29 - 22 France 11 12 2 12 26 Netherlands 20 20 1 - 21 Germany 2 (2) 4 2 4 International 3 (2) 4 1 3 Total 44 29 46 43 118
Operating profit was ‚£29 million (2007: ‚£44 million) mainly as a result of increased exceptional items associated with the plan to revitalise Logica.
Net exceptional items were ‚£46 million (2007: ‚£8 million). The largestcomponent of this was ‚£41 million of restructuring charges incurred foremployee redundancies and exiting property leases, particularly in the UK wherewe initiated our restructuring earliest. The remaining ‚£5 million relates
tothe WM-data integration.
Amortisation of intangible assets from acquisitions was ‚£43 million (2007: ‚£38 million). The higher charge was mainly a result of movements in exchange rates.
Review of continuing operations by geography
Nordics Growth Growth H1'08 on H1'08 onRevenue by market sector H1'07 H1'07 H1'07 H1'07 H1'08 Pro forma Actual Pro forma Actual ‚£'m ‚£'m ‚£'m % % Public Sector 161 147 122 10 32
Industry, Distribution and Transport 212 199 200 7
6 Energy and Utilities 30 31 26 (3) 15 Financial Services 57 47 42 21 36 Telecoms and Media 37 38 34 (3) 9 Total 497 462 424 8 17 Outsourcing (%) 33 36
Adjusted operating profit (‚£'m) 42 42
Adjusted operating margin (%) 8.4 8.8 Revenue was up 8% on a pro forma basis to ‚£497 million, with second quartergrowth of 13%. Adjusted operating profit was ‚£42 million. Incrementalintegration cost savings of ‚£4 million were offset against lowerprofits on Swedish license sales and the effect of slightly lower margins,which drove market share gains, in Finland. This resulted in an adjustedoperating margin of 8.4 %.
There was good revenue growth across all of the Nordics, even in a more challenging Danish market. Sweden continued to be the largest market (representing 56% of Nordics revenue in the first half).
Our three largest sectors all grew above the market in the first half. In IDT,we saw good growth driven by increased business with 20 of our key Swedishaccounts. Public Sector was up 10%, with increased sales to municipal andhealth care customers in Finland and the rollout of previously awarded Swedishcontracts. In Financial Services, growth of 21% was driven by growing businesswith existing customers such as Swedbank and new wins such as that announcedwith Bankgirocentralen, a Swedish provider of payment and informationservices. Energy and Utilities was down slightly on a strong first half in2007 while revenue was down in Telecoms and Media due to declining licensesales. Book to bill for the period was 115% (2007: 101%). Order intake was healthywith double digit growth in orders in all countries. We signed a number ofimportant outsourcing contracts in Sweden with several new customers coveringsystems and applications management. Since the end of the first half, we havealso been awarded a contract with the Finnish State Treasury and the provisionof a national healthcare web portal in Sweden. The pipeline for 2008 remainssolid.
Leaders from within the Nordic business are leveraging their knowledge andcapability to shape our Infrastructure Management offering within OutsourcingServices. Since April, the Nordics has recruited a number of senior accountmanagers and has identified work to be transitioned offshore from within theirexisting programmes. Collaboration across the Group on Microsoft Dynamics hasled to an important first win in the Middle East (as described in theInternational section). UK Growth Growth H1'08 on H1'08 onRevenue by market sector H1'07 H1'07 H1'07 H1'07 H1'08 Pro forma Actual Pro forma Actual ‚£'m ‚£'m ‚£'m % % Public Sector 201 187 187 7 7 Industry, Distribution and Transport 47 49 49 (4) (4) Energy and Utilities 57 49 49 16 16 Financial Services 29 31 31 (6) (6) Telecoms and Media 20 18 18 11 11 Total 354 334 334 6 6 Outsourcing (%) 40 41
Adjusted operating profit (‚£'m) 22 4
Adjusted operating margin (%) 6.3 1.3
The UK business grew in the first half of 2008, with revenue up 6% on a proforma basis to ‚£354 million. Second quarter growth of 12% was a result ofcontinuing Public Sector strength and improvements in the commercial sectors. Adjusted operating profit was ‚£22 million, compared to ‚£4 million in 2007. There were no significant one-off contract related costs incurred in the UKbusiness in the first half. This provided a favourable comparison with thefirst half of 2007, when we incurred provisions in relation to cost overruns ona UK contract.
Adjusted operating margin improved to 6.3% in the first half (2007: 1.3%). This was partly a result of improved utilisation driven by higher volumes inthe commercial sectors as well as the absence of one-off costs. Initialbenefits from 2007 overhead reductions are offsetting investments in growingthe UK business, including higher levels of bidding costs and increased salesrecruitment. Public Sector revenue was up 7% and represented 57% of UK revenue in the firsthalf. The Public Sector benefited from a strong performance in the Space andDefence business on the back of higher than expected revenue in our longer-termcontracts and more business in security areas. Growth in Energy and Utilities at 16% was an important contributor to UK growthas well as to strong Group growth in Energy and Utilities for the first half. In the commercial sectors, Financial Services and IDT continue to bechallenging. Some slower spending impacted Financial Services. In IDT, we sawsome initial revenue ramp up of our contract with BAA and continued spending inthe transport sector.
We are seeing a good pipeline of opportunities in the Energy and Utilities and Telecoms and Media business, with good demand for professional services and strong regulatory drivers in Energy and Utilities. We continue to expect slower growth in the Public Sector combined with improvement in commercial sectors in 2008.
Book to bill was 98% (2007: 104%). Across the commercial sectors, we have taken steps to diversify our customer base and to increase the scope of work with existing clients, winning new contracts with BAA, Elexon, BT and Royal Mail.
Our focus remains on reinvigorating the sales capability of the UK business through 2008. Over 20 new sales and account management employees and over 30 consultants were recruited in the UK in the first half. We are also undertaking a proactive exercise to identify new demand for offshore delivery.
Restructuring and property rationalisation in the UK are expected to be the main drivers of 2008 cost savings. We have already achieved some headcount reduction and an initial property closure.
France Growth Growth H1'08 on H1'08 onRevenue by market sector H1'07 H1'07 H1'07 H1'07 H1'08 Pro forma Actual Pro forma Actual ‚£'m ‚£'m ‚£'m % % Public Sector 39 38 33 3 18
Industry, Distribution and Transport 137 126 109 9
26 Energy and Utilities 52 48 43 8 21 Financial Services 96 89 78 8 23 Telecoms and Media 30 31 27 (3) 11 Total 354 332 290 7 22 Outsourcing (%) 33 32
Adjusted operating profit (‚£'m) 26 25
Adjusted operating margin (%) 7.3 7.7 Revenue was up 7% on a pro forma basis to ‚£354 million, with consistent revenuegrowth through the first and second quarters. Adjusted operating profit was ‚£26 million (2007: ‚£25 million). Adjusted operating margin was down slightly to7.3% (2007: 7.7%) as we continued to employ a level of subcontracting to ensuregreater flexibility in light of market uncertainty.
Overall, the French market remained robust. Revenue growth remained strongest in our largest market sectors in France, with a small improvement in Public Sector growth. IDT and Energy and Utilities remained strong against tough comparatives, with contract rollouts in the utilities and transport segments.
Financial Services saw continued progress as we deployed solutions to allow customers to comply with regulatory requirements.
In the first half of 2008, our top 20 French accounts posted growth of 13%. Strong account management and a better ability to sell larger outsourcing dealscontributed to an improvement in the book to bill in the first half at 106%(2007: 94%). This reflects new orders from an existing financial servicescustomer booked in the second quarter but excludes a new contract award fromMichelin at the beginning of the third quarter. In the first half, we saw increased demand for our offshore capability, withover half of our larger newly signed contracts involving at least some offshoredeployment. We increased the nearshore and offshore billable headcount beingsupplied into French customers (mainly with transition of work to Morocco).
As
a result, we slowed onshore recruitment somewhat in the first half.
Around a quarter of the key accounts that the Group will be targeting going forward will be French-based customers. High growth areas such as Service Oriented Architecture (SOA), Oracle and Business Intelligence (BI) are being developed partly out of capability in our French business.
Netherlands Growth Growth H1'08 on H1'08 onRevenue by market sector H1'07 H1'07 H1'07 H1'07 H1'08 Pro forma Actual Pro forma Actual ‚£'m ‚£'m ‚£'m % % Public Sector 92 78 69 18 33
Industry, Distribution and Transport 55 59 53 (7)
4 Energy and Utilities 28 28 25 - 12 Financial Services 88 89 77 (1) 14 Telecoms and Media 21 15 13 40 62 Total 284 269 237 6 20 Outsourcing (%) 15 14
Adjusted operating profit (‚£'m) 21 23
Adjusted operating margin (%) 7.5 8.4
Revenue was up 6% to ‚£284 million, despite headcount in the Netherlands being 4% below last year. Adjusted operating profit was ‚£21 million (2007: ‚£23 million), giving an adjusted operating margin of 7.5%.
Increased use of subcontractors and a ¢â€š¬2 million investment in a new HR serviceplatform contributed to increased costs compared to last year. Our continuedfocus to improve retention (which had some impact in the second quarter) andincreasing use of offshore resources will make it easier to offset the effectof subcontracting in the second half. The Public Sector and Telecoms and Media drove first half growth. The 18%increase in Public Sector revenue is mainly attributable to an increased volumeof work with the Dutch Ministry of Social Affairs as we finished the projectwith UWV booked in 2007. A growing relationship with KPN (as demonstrated bycontract awards for network information systems and HR BPO) was key toincreased strength in Telecoms. However, lower headcount due to a tight labourmarket, combined with weaker utilisation due to timing of projects, constrainedour ability to drive revenue growth in Financial Services and IDT. IDT wasdown 7% as a result of these factors. In Financial Services, continueddeployment of our ING contract and work in the insurance sector compensated forslower growth elsewhere. Revenue was stable in Energy and Utilities whencompared to strong growth in our business with a major client in the oil andgas sector last year. Book to bill was 100% (2007: 106%), with outsourcing book to bill at 103% as wewon more outsourcing business in the Netherlands. In addition to our wins atKPN and extensions to our work at ING, we were also awarded a Finance andAccounting BPO contract for cross-border mail provider Spring Global Mail (ajoint venture between TNT, Royal Mail Group and Singapore Post) which will drawon local capability in the Netherlands and Germany. Outsourcing sales teams have been strengthened in the Netherlands. Inaddition, a number of high growth area leaders have been appointed from theNetherlands. Germany Growth Growth H1'08 on H1'08 onRevenue by market sector H1'07 H1'07 H1'07 H1'07 H1'08 Pro forma Actual Pro forma Actual ‚£'m ‚£'m ‚£'m % % Public Sector 4 3 3 33 33
Industry, Distribution and Transport 45 44 39 2
15 Energy and Utilities 18 12 10 50 80 Financial Services 24 22 19 9 26 Telecoms and Media 10 11 10 (9) - Total 101 92 81 10 25 Outsourcing (%) 12 16
Adjusted operating profit (‚£'m) 4 3
Adjusted operating margin (%) 3.6 3.6
Revenue was up 10% on a pro forma basis to ‚£101 million. Adjusted operating profit was ‚£4 million, giving an adjusted operating margin of 3.6% (2007: 3.6%).
A strong labour market has resulted in lower recruitment and has left ourheadcount broadly unchanged from last year. This will make it more difficultto grow professional services revenue as we work to increase skill levels amongour existing billable staff.
Three of our sectors grew above the market in the first half. Energy and Utilities revenue was up 50% due to growth with existing clients and was a contributor to strong Group revenue growth in Energy and Utilities for the first half. Public Sector continued to be a contributor to growth, with revenue up 33%. Financial Services revenue was up 9% on the back of our deployment of a contract for a major German financial services institution.
Book to bill was 110% (2007: 93%). In the Financial Services and IDT areas, weare winning business as customers adopt higher levels of offshore resource toensure they remain cost competitive globally. International Growth Growth H1'08 on H1'08 onRevenue by area H1'07 H1'07 H1'07 H1'07 H1'08 Pro forma Actual Pro forma Actual ‚£'m ‚£'m ‚£'m % % Rest of Europe 92 97 87 (5) 6 Rest of world 87 76 72 14 21 Total 179 173 159 3 13 Growth Growth H1'08 on H1'08 onRevenue by market sector H1'07 H1'07 H1'07 H1'07 H1'08 Pro forma Actual Pro forma Actual ‚£'m ‚£'m ‚£'m % % Public Sector 20 16 14 25 43
Industry, Distribution and Transport 25 25 24 -
4 Energy and Utilities 97 88 81 10 20 Financial Services 25 27 25 (7) - Telecoms and Media 12 17 15 (29) (20) Total 179 173 159 3 13 Outsourcing (%) 41 38
Adjusted operating profit (‚£'m) 3 5
Adjusted operating margin (%) 2.0 3.1
Revenue for the six months was up 3% to ‚£179 million, with European revenueaccounting for 51% of the total. Adjusted operating profit was ‚£3 million,giving an adjusted operating margin of 2.0%. Restructuring in our Portuguese business (which has resulted in a headcountdecrease to around 1,000 employees), a reduction in subcontractors and improvedutilisation in a number of geographies, were positive contributors to margin. However, improvements were offset by investments to support new business withEuropean clients in North America and rebranding costs, resulting in adjustedoperating margin of 2.0%. Portugal accounted for approximately a quarter of International revenue, withPortuguese customers remaining the largest contributor to Energy and Utilitiesrevenue. Energy and Utilities revenue growth reflected continued strength inthe Brazilian market and increased work for European-based customers oninternational projects. IDT revenue was up slightly as North American revenuefrom multi-country projects with European customers offset a lower runrateunder our contract signed in 2007 with brewing company InBev. Public Sectorrevenue was up 25%, as we deployed projects for the European Commission and inthe Middle East. Telecoms and Media revenue decreased as a result ofstructural changes within a customer in Portugal and lower revenue in Asia.
Financial Services was lower following completion of a project in Asia.
Book to bill was 103% (2007: 94%). Wins in the period included a $4 millionorder from Dubai RTA (Road & Traffic Authority) for a CRM project whichleverages our existing Microsoft Dynamics expertise and a five yearapplications management contract with semiconductor company NXP to deliver
intoEurope and Asia. EmployeesAt 30 June 2008, we had 39,201 employees (31 December 2007: 38,740). In thefirst half, we recruited over 4,000 new employees. Employee churn throughannualised voluntary attrition remained stable at 16% for the Group. Attritionincreased in Germany and slowed in the Netherlands in the second quarter.
Wage inflation was broadly in line with wider inflation in our major geographies. Utilisation in our major geographies is good, with a return to more normal levels in the UK business following weaker utilisation in 2007.
Financial itemsNet finance costs were ‚£17 million. We continue to expect full year financecosts to be around ‚£38 million, which assumes increased second half interestcharges following the redemption of our convertible bond. Profit before taxwas ‚£13 million (2007: ‚£29 million). Basic adjusted earnings per share from continuing operations were 5.4p (2007:4.0p) on a weighted average number of shares of 1,446 million. Basic earningsper share from continuing operations were 0.4p (2007: 1.8p), reflecting loweroperating profit due to ‚£46 million of exceptional items mainly associated withthe plan to revitalise Logica and higher tax and interest charges in 2008. The first half showed good operational management of working capital across theGroup. Cash generated from continuing operations was ‚£87 million (2007: ‚£21million). The net cash inflow from trading operations was ‚£101 million, givingimproved cash conversion at 86% (2007: 41%). TaxationThe effective tax rate, before share of post-tax profits from associates,exceptional items and amortisation of intangible assets initially recognised onacquisition, was 23% (2007: 18%). The effective tax rate for 2008 is expectedto remain at around 23%.
The total tax charge for the first half was ‚£7 million (2007: ‚£1 million).
Minority interestsAt the time of the announcement of the Telecoms Products disposal in early2007, we earmarked a portion of the proceeds to be used to buy out remainingminority interests in Edinfor and WM-data. We completed the acquisition of theminority stake in Edinfor for ‚£42 million (¢â€š¬55 million) on 7 March 2008.
At the time of the WM-data transaction, Logica acquired 95.33% of the company's issued share capital. The compulsory redemption process to acquire the remaining 4.67% from WM-data minority shareholders is progressing. We currently expect the redemption process to be completed by the end of the fourth quarter of 2008.
Acquisitions
In addition to the buy out of the EDP minority interest in Edinfor, the Group made a small number of acquisitions in the Nordic region in the first half:
The acquisition of the ERP consultancy business of Explit in Sweden, paying cash of SEK 1.3 million
The acquisition of the service desk operations of Synergi in the oil and gassector for ‚£2 million (NOK 24 million), adding to the existing services in thissector in Norway. This acquisition resulted in goodwill of ‚£2 million (NOK 18million), attributable to anticipated synergies and the value of the workforce
The acquisition of business handling services from Sampo bank in Finland for a consideration of ‚£1 million (¢â€š¬1 million)
The operations and financial reporting of these businesses have been integrated with the Group's pre-existing Nordics business and were immaterial to the Group's revenue and net profit as reported in the income statement.
Balance sheet items
Group net debt at 30 June 2008 was ‚£565 million, compared to ‚£483 million atthe end of 2007. The net debt/EBITDA ratio for the twelve months to the end ofJune 2008 was 1.9x. Our ¢â€š¬303 million convertible bonds will be redeemed in September 2008, out ofexisting banking facilities mainly maturing in 2010. Logica's principal bankfacilities are a ¢â€š¬348 million term loan and a ‚£330 million multi-currencyrevolving credit facility, which had previously been largely undrawn, as wellas two smaller facilities (‚£150 million and ‚£100 million). DividendLogica's Board continues to believe that the dividend is an important elementof shareholder return. The Company's progressive dividend policy, which ensuresthat shareholders benefit from the growth of the business, remains unchanged. The directors have declared an interim dividend of 2.4 pence to be paid on 17October 2008 to eligible shareholders on the register at the close of businesson 19 September 2008. The interim dividend represents a 4% increase on lastyear. Trading of shares in Sweden
On 28 May, we announced that trading in Logica shares on the Xternal list of the OMX Nordic Exchange in Stockholm would cease during the summer of 2008.
Effective 30 June, the shares were deregistered from the VPC system. Logica shares now trade only on the London Stock Exchange and Euronext Amsterdam.
Board changes
Jim McKenna, an Executive Director, has advised the Company of his intention to stand down from the Board on 30 September 2008. Jim has been an Executive Director of the Company for 10 years.
Next financial calendar dates
Logica's next scheduled communications to the market are:
Friday 14 November 2008 Q3 2008 Interim Management StatementWednesday 25 February 2009 FY 2008 Preliminary results Notes:
With the exception of adjusted operating margin percentages, all numbers in this release have been rounded. Adjusted operating margin reflects the adjusted operating margin reported in the consolidated financial statements.
Cash conversion represents net cash inflow from trading operations divided by adjusted operating profit. Net cash inflow from trading operations is cash generated from operations before cash flows from the purchase of property, plant, equipment, intangibles and restructuring and integration activities.
Book to bill percentage is a measure of the level of orders relative to revenue in the period.
Unless otherwise stated, the comparatives in this release relate to pro forma results for the first half of 2007 which:
reflect average 2008 exchange rates
exclude businesses (including Caran) disposed of in 2007
areadjusted to include the acquired Siemens Business Services (acquired in March 2007) for all of 2007
areadjusted to include the acquisitions and disposals that took place during 2008.
Adjusted operating profit and margin are from continuing operations and beforeexceptional items and amortisation of intangible assets initially recognised atfair value in a business combination. H1 '07 Pro H1 Pro H1 '07 forma Actual '08 forma Actual growth growth ‚£'m ‚£'m ‚£'m % % Operating profit 29 44 (34) Add back impact of: Exceptional items 46 8
Amortisation of acquisition related
intangibles 43 38 Adjusted operating profit 118 102 90 16 31
Adjusted earnings per share is based on net profit attributable to ordinary shareholders, excluding the following items:
discontinued operations
exceptional items
mark-to-market gains or losses on financial assets and financial liabilities designated at fair value through profit or loss
amortisation of intangible assets initially recognised at fair value in a business combination
taxon the items above, where applicable
Exchange rates used are as follows:
H1 '08 FY '07 H2 '07 H1 '07 ‚£1 / ¢â€š¬ Average 1.29 1.46 1.44 1.48
End of period 1.26 1.36 1.36 1.49
‚£1 / SEK Average 12.11 13.51 13.35 13.67
End of period 11.97 12.87 12.87 13.76
Condensed consolidated income statement (unaudited)
For the six months ended 30 June 2008
Six months Six months ended ended 30 June 30 June 2008 2007 Note ‚£'m ‚£'m Continuing operations: Revenue 2 1,769.4 1,525.3 Net operating costs (1,740.4) (1,481.4) Operating profit 2,4 29.0 43.9 Analysed as:
Operating profit before exceptional 74.6
51.5items Exceptional items 3 (45.6) (7.6) Operating profit 29.0 43.9 Finance costs (22.3) (19.8) Finance income 5.5 4.3
Share of post-tax profits from 0.4
0.8associates Profit before tax 12.6 29.2 Taxation 6 (6.5) (1.8)
Profit for the period from continuing 6.1
27.4operations Discontinued operation:
Profit from discontinued operation 7 -
122.0 Net profit for the period 6.1 149.4 Attributable to: Equity holders of the parent 5.2 149.7 Minority interests 0.9 (0.3) 6.1 149.4
Earnings per share from continuing p /
p /operations share share - Basic 8 0.4 1.8 - Diluted 8 0.4 1.8 Earnings per share from total operations - Basic 8 0.4 9.8 - Diluted 8 0.4 9.7 Dividends recognised in the period amounted to ‚£50.5 million (six months ended30 June 2007: ‚£51.9 million), or 3.5p per share (six months ended 30 June 2007:3.4p per share). The interim dividend declared but not recognised in theseinterim financial statements is 2.4p per share (six months ended 30 June 2007:2.3p per share) or approximately ‚£34.8 million (six months ended 30 June 2007:‚£33.7 million).
The notes on pages 21 to 30 form an integral part of this condensed interim financial information.
Condensed consolidated statement of recognised income and expense (unaudited)
For the six months ended 30 June 2008
Six months Six months ended ended 30 June 30 June 2008 2007 ‚£'m ‚£'m
Exchange differences on translation of foreign operations 109.9 (14.6)
Actuarial (losses) / gains on defined benefit plans (3.2)
7.1
Tax on items taken directly to equity 1.7
(1.9)
Net income / (expense) recognised directly in equity 108.4 (9.4) Profit for the period 6.1 149.4
Total recognised income and expense for the period 114.5
140.0 Attributable to: Equity holders of the parent 111.8 140.3 Minority interest 2.7 (0.3) 114.5 140.0
The notes on pages 21 to 30 form an integral part of this condensed interim financial information.
Condensed consolidated balance sheet (unaudited)
30 June 2008 30 June 31 December 30 June 2008 2007 2007 Note ‚£'m ‚£'m ‚£'m Non-current assets Goodwill 1,735.4 1,604.0 1,494.8 Other intangible assets 352.9 358.0 359.5
Property, plant and equipment 9 130.2 132.1
131.4 Investments in associates 2.2 2.4 4.0 Financial assets 12.0 11.0 24.6 Retirement benefit assets 20.9 12.0 4.1 Deferred tax assets 47.8 54.5 50.6 Total non-current assets 2,301.4 2,174.0 2,069.0 Current assets Inventories 1.8 1.4 3.5
Trade and other receivables 1,180.4 1,021.2
997.1 Current tax assets 8.0 40.5 20.4
Cash and cash equivalents 88.2 108.7
228.8 Total current assets 1,278.4 1,171.8 1,249.8 Current liabilities Convertible debt (242.1) (220.0) (203.2) Other borrowings (113.3) (97.2) (26.2)
Trade and other payables (966.7) (868.2)
(868.4)
Current tax liabilities (51.3) (56.1)
(37.0) Provisions 10 (26.1) (9.1) (18.1)
Total current liabilities (1,399.5) (1,250.6)
(1,152.9)
Net current (liabilities) / assets (121.1) (78.8)
96.9
Total assets less current liabilities 2,180.3 2,095.2
2,165.9 Non-current liabilities Borrowings (297.4) (274.7) (398.5)
Retirement benefit obligations (63.3) (50.6)
(40.2) Deferred tax liabilities (115.4) (125.0) (136.0) Provisions 10 (26.3) (18.9) (20.3)
Other non-current liabilities (0.9) (0.7)
(0.6)
Total non-current liabilities (503.3) (469.9)
(595.6) Net assets 1,677.0 1,625.3 1,570.3 Equity Share capital 11 146.2 145.8 154.0 Share premium account 12 1,100.4 1,098.9 1,097.9 Other reserves 13 417.9 352.3 289.9
Total shareholders' equity 1,664.5 1,597.0
1,541.8 Minority interests 12.5 28.3 28.5 Total equity 1,677.0 1,625.3 1,570.3
The notes on pages 21 to 30 form an integral part of this condensed interim financial information.
Condensed consolidated cash flow statement (unaudited)
For the six months ended 30 June 2008
Six Six months months ended ended 30 June 30 June 2008 2007 Note ‚£'m ‚£'m
Cash flows from continuing operating activities Net cash inflow from trading operations 14
101.3 37.3
Cash outflow related to restructuring and integration 14 (13.8) (16.1)activities Cash generated from continuing operations 14 87.5 21.2 Finance costs paid (14.6) (20.4) Income tax received / (paid) 13.1 (23.4) Net cash inflow / (outflow) from continuing operating 86.0 (22.6)activities
Net cash inflow from discontinued operating activities
- 8.6
Cash flows from continuing investing activities
Finance income received 4.0 2.1 Dividends received from associates
0.7 0.9
Proceeds on disposal of property, plant and equipment
0.1 0.5
Purchases of property, plant and equipment
(18.4) (19.4)
Expenditure on intangible assets
(12.3) (4.4)
Purchase of minority interests
(42.1) -
Acquisition of subsidiaries and other businesses, net of (2.0) (13.6)cash acquired Disposal costs of prior year disposals
(7.4) -
Disposal of subsidiaries and other businesses, net of cash 2.3 28.9disposed
Disposal of discontinued operation, net of cash disposed
- 222.0
Net cash (outflow) / inflow from continuing investing (75.1) 217.0activities
Cash flows from continuing financing activities Proceeds from issue of new shares 1.9 1.1 Purchase of own shares - (2.7) Proceeds from bank borrowings 51.7 - Repayments of bank borrowings (34.4) (93.7) Repayments of finance lease principal
(2.1) (2.0)
Repayments of other borrowings
- (0.1)
Proceeds from forward contracts
4.2 2.5
Dividends paid to the Company's shareholders
(50.5) (51.9)
Dividends paid to minority interests
- (0.4)
Net cash outflow from continuing financing activities (29.2) (147.2) Net (decrease) / increase in cash, cash equivalents and bank (18.3) 55.8overdrafts Cash, cash equivalents and bank overdrafts at the beginning 15 99.6 150.9of the period Net (decrease) / increase in cash, cash equivalents and bank 15 (18.3) 55.8overdrafts Effect of foreign exchange rates 15
5.8 0.7
Cash, cash equivalents and bank overdrafts at the end of the 15 87.1 207.4period
The notes on pages 21 to 30 form an integral part of this condensed interim financial information.
Selected notes to the condensed consolidated interim financial information
Accounting policies and basis of preparation
The condensed consolidated interim financial information for the six monthsended 30 June 2008 has been prepared in accordance with the Disclosure andTransparency Rules of the Financial Services Authority and with IAS 34,'Interim financial reporting' as adopted by the European Union. Other than asdescribed below, the accounting policies applied are consistent with those ofthe annual financial statements for the year ended 31 December 2007, which havebeen prepared in accordance with IFRSs as adopted by the European Union, andthe condensed consolidated interim financial information should be read inconjunction with the annual financial statements.
The following standards, amendments to and interpretations of published standards are mandatory if endorsed by the European Union for accounting periods beginning on or after 1 January 2008, but had no material impact on the consolidated financial statements:
IFRIC 11, 'IFRS 2 - Group and treasury share transactions'.
IFRIC 12, 'Service concession arrangements'. The amendment to the standard is still subject to endorsement by the European Union.
IFRIC 14, 'IAS 19 - The limit of a defined benefit asset, minimum funding requirements and their interaction'. The amendment to the standard is still subject to endorsement by the European Union.
The following standards, amendments to and interpretations of published standards have been issued but are not effective for 2008 and have not been early adopted:
IFRS 8, 'Operating segments', effective for annual periods beginning on orafter 1 January 2009. The main impact would be that operating segments wouldbe identified, and segment information provided, on the same basis as is usedinternally for evaluating segment performance and allocating resources. Reconciliations would be provided of total segment revenues, profit, assets,liabilities and other amounts to the corresponding amounts in the consolidatedfinancial statements, together with an explanation of any differences inmeasurement basis. IFRIC 13, 'Customer loyalty programmes', effective for annual periods beginningon or after 1 July 2008. Management does not expect this interpretation to berelevant to the Group. The amendment to the standard is still subject toendorsement by the European Union. IAS 1 (Amendment), 'Presentation of financial statements', effective for annualperiods beginning on or after 1 January 2009. No significant impact on theconsolidated financial statements is expected, except for additionaldisclosure. The amendment to the standard is still subject to endorsement bythe European Union.IAS 23 (Amendment), 'Borrowing costs', effective for annual periods beginningon or after 1 January 2009. Management does not expect the interpretation tohave a significant impact on the consolidated financial statements. Theamendment to the standard is still subject to endorsement by the EuropeanUnion. IAS 27 (Revised), 'Consolidated and Separate Financial Statements', effectivefor annual periods beginning on or after 1 July 2009. The revised standardmust be applied prospectively and requires that acquisitions and disposals thatdo not result in a change of control are accounted for within equity. Anydifference between the change in the minority interest and the fair value ofthe consideration paid or received is recognised directly in equity andattributed to the owners of the parent. The revised standard is still subjectto endorsement by the European Union.IFRS 2 (Amendment), 'Share-based payment', effective for annual periodsbeginning on or after 1 January 2009. The amendment to the standard limitsvesting conditions to service conditions and performance conditions. Theamendment also specifies that all cancellations, whether by the entity or byother parties, should receive the same accounting treatment, i.e. accelerationof the expense based on the grant date fair value. No significant impact onthe consolidated financial statements is expected. The amendment to thestandard is still subject to endorsement by the European Union. IFRS 3 (Revised), 'Business combinations' and consequential amendments to IAS28, 'Investments in associates' and IAS 31, 'Interests in joint ventures', mustbe applied prospectively for business combinations after 1 July 2009. Therevised standard requires that all acquisition-related costs are to be expensedto the income statement in the period incurred. Furthermore, purchaseaccounting only applies at the point when control is achieved. This has anumber of implications:where the acquirer has a pre-existing equity interest in the entity acquiredand increases its equity interest such that it achieves control, it mustre-measure its previously-held equity interest to fair value as at the date ofobtaining control and recognise any resulting gain or loss in the incomestatement.
once control is achieved all other increases and decreases in ownership interest are treated as transactions among equity holders and reported directly within equity. Goodwill is not re-measured or adjusted.
The revised standard is still subject to endorsement by the European Union.
IAS 32 (Amendment), 'Financial instruments: presentation', and consequentialamendments to IAS 1, 'Presentation of financial statements', effective forannual periods beginning on or after 1 January 2009. No significant impact onthe consolidated financial statements is expected. The amendment to thestandard is still subject to endorsement by the European Union. All the IFRSs, IFRIC interpretations and amendments to existing standards hadbeen adopted by the EU at the date of approval of these condensed consolidatedinterim financial statements, unless otherwise indicated.
Selected notes to the condensed consolidated interim financial information (continued)
1. Accounting policies and basis of preparation (continued) This interim report does not constitute statutory accounts of the Group withinthe meaning of section 240 of the Companies Act 1985. Statutory accounts forthe year ended 31 December 2007, which were prepared under InternationalFinancial Reporting Standards, have been filed with the Registrar ofCompanies. The auditors' report on those accounts was unqualified and did notcontain a statement under section 237(2) and 237(3) of the Companies Act 1985. The most important foreign currencies for the Group are the euro and theSwedish krona. The relevant exchange rates to pounds sterling were: 30 June 2008 30 June 2007 Average Closing Average Closing ‚£1 = ¢â€š¬ 1.29 1.26 1.48 1.49 ‚£1 = SEK 12.11 11.97 13.67 13.76
Segment information - primary basis
Logica was organised into six geographical segments based on the location ofassets. These segments are the Group's primary reporting format for segmentinformation as they represent the dominant source and the nature of the Group'srisks and returns. Segment revenue and profit after tax under the primaryreporting format are disclosed in the table below. Revenue Profit Six months Six months Six months Six months ended ended ended ended 30 June 30 June 30 June 30 June 2008 2007 2008 2007 ‚£'m ‚£'m ‚£'m ‚£'m Nordics 496.9 424.0 7.7 4.2 United Kingdom 353.4 334.2 (7.1) 4.4 France 354.3 289.4 11.9 10.9 Netherlands 284.1 237.2 20.0 20.1 Germany 101.4 81.1 (2.1) 1.6 International 179.3 159.4 (1.4) 2.7 Revenue and operating profit 1,769.4 1,525.3 29.0 43.9 Finance costs (22.3) (19.8) Finance income 5.5 4.3
Share of post-tax profits from 0.4
0.8 associates Taxation (6.5) (1.8)
Profit from continuing operations 6.1
27.4 Discontinued operation - 122.0 Net profit 6.1 149.4 Exceptional items
The exceptional items recognised within operating profit were as follows:
Six months Six months ended ended 30 June 2008 30 June 2007 ‚£'m ‚£'m Restructuring costs (41.0) - Integration costs (4.9) (7.6)
Profit on disposal of business 0.3
- (45.6) (7.6) During the six months ended 30 June 2008, the Group incurred a charge of ‚£41.0million relating to the restructuring of the business following the Group'sbusiness review. The restructuring comprised costs associated with the closureof offices in the UK and redundancy of staff across the Group. A further ‚£4.9m(2007: ‚£7.6 million) relates to the integration of the business in the Nordics,following the acquisition of WM-data AB. This integration comprised costsassociated with offshoring activities and IT infrastructure integration. TheGroup disposed of its UK Print and Mail operation on 15 January 2008 for cashconsideration of ‚£0.8 million generating a profit of ‚£0.3 million. Thisdisposal does not match the criteria detailed in IFRS 5 'Non-current assetsheld for sale and discontinued operations'. It was therefore not treated as adiscontinued operation.
Selected notes to the condensed consolidated interim financial information (continued)
Adjusted operating profit Adjusted operating profit excludes: the results of discontinued operations,exceptional items and amortisation of intangible assets initially recognised atfair value in a business combination, whenever such items occur. Adjustedoperating profit is not defined under IFRS and has been shown as the directorsconsider this to be helpful for a better understanding of the performance ofthe Group's underlying business. It may not be comparable with similarlytitled profit measurements reported by other companies and is not intended tobe a substitute for, or superior to, IFRS measures of profit. Six months Six months ended ended 30 June 30 June 2008 2007 ‚£'m ‚£'m Operating profit 29.0 43.9 Exceptional items 45.6 7.6
Amortisation of intangible assets initially recognised on 43.5
38.2 acquisition Adjusted operating profit 118.1 89.7
Adjusted operating profit analysis per geographical segment was as follows:
Six months ended 30 June 2008 Operating Exceptional Amortisation Adjusted profit items of intangibles* operating profit ‚£'m ‚£'m ‚£'m ‚£'m Nordics 7.7 5.8 28.4 41.9 United (7.1) 29.2 - 22.1Kingdom France 11.9 1.2 12.6 25.7 Netherlands 20.0 1.3 - 21.3 Germany (2.1) 4.0 1.7 3.6 International (1.4) 4.1 0.8 3.5 29.0 45.6 43.5 118.1
* Amortisation of intangible assets initially recognised on acquisition.
Six months ended 30 June 2007 Operating Exceptional Amortisation Adjusted profit items of intangibles* operating profit ‚£'m ‚£'m ‚£'m ‚£'m Nordics 4.2 7.6 25.0 36.8 United Kingdom 4.4 - - 4.4 France 10.9 - 11.2 22.1 Netherlands 20.1 - - 20.1 Germany 1.6 - 1.3 2.9 International 2.7 - 0.7 3.4 43.9 7.6 38.2 89.7
* Amortisation of intangible assets initially recognised on acquisition.
Employees Six months Six months ended ended 30 June 2008 30 June 2007
The average number of employees during the period was: Number
Number Nordics 9,697 10,193 United Kingdom 5,589 5,898 France 9,058 8,672 Netherlands 6,015 6,136 Germany 2,084 2,085 International 6,615 6,242 Continuing operations 39,058 39,226 Discontinued operation - 1,450 39,058 40,676
Selected notes to the condensed consolidated interim financial information (continued)
5. Employees (continued) Six months Six months ended ended 30 June 2008 30 June 2007
The number of employees at the end of the period was: Number
Number Nordics 9,795 9,379 United Kingdom 5,536 5,781 France 8,979 8,775 Netherlands 5,967 6,190 Germany 2,050 2,091 International 6,874 6,280 39,201 38,496 Taxation The tax charge on continuing operations after amortisation of intangible assetsinitially recognised on acquisition, for the six months ended 30 June 2008,before share of post-tax profits from associates and exceptional items was ‚£11.1 million (19.2% effective tax rate) (six months ended 30 June 2007: ‚£3.9million (10.8% effective tax rate)) and has been based on an estimatedeffective tax rate for the full year excluding the impact of any share ofpost-tax profit from associates and exceptional items. The effective tax rate on continuing operations for the six months ended 30June 2008, before share of post-tax profits from associates, exceptional itemsand amortisation of intangible assets initially recognised on acquisition was23.0% (six months ended 30 June 2007: 18.0%). The increase is mainly due tothe use of unrecognised losses brought forward in 2007. The total tax charge for the six months ended 30 June 2008 is ‚£6.5 million (sixmonths ended 30 June 2007: ‚£1.8 million) of which a tax credit of ‚£16.8 million(six months ended 30 June 2007: ‚£11.6 million) relates to exceptional items andamortisation of intangible assets initially recognised on acquisition.
The tax charge includes an overseas charge of ‚£8.5 million (six months ended 30 June 2007: ‚£3.3 million).
Discontinued operation
The Group completed its disposal of the Telecoms Products business to an investment consortium led by Atlantic Bridge Ventures on 18 June 2007 for ‚£ 265.0 million. The transaction reflects the Group's strategic focus on developing as a major international IT and business services company.
Selected notes to the condensed consolidated interim financial information(continued) 8. Earnings per share Six months ended 30 June 2008 Weighted average Earnings number per Earnings of share shares Earnings per share from continuing and total ‚£'m Million Penceoperations
Profit for the period from all operations 6.1
Minority interests (0.9) Earnings attributable to ordinary shareholders 5.2 1,445.5 0.4 Basic EPS 5.2 1,445.5 0.4 Effect of share options and share awards - 14.7 - Diluted EPS 5.2 1,460.2 0.4
Adjusted earnings per share from continuing and total
operations Earnings attributable to ordinary shareholders 5.2 1,445.5 0.4 Add back: Exceptional items, net of tax 41.0 - 2.8
Mark-to-market loss on convertible bonds designated at fair value through profit or loss, net of tax
0.9 - 0.1
Amortisation of intangible assets initially recognised
on acquisition, net of tax 31.3 - 2.1 Basic adjusted EPS 78.4 1,445.5 5.4 Effect of share options and share awards -
14.7 -
Effect of convertible bonds, excluding mark-to-market
loss, net of tax 2.4 64.6 (0.1) Diluted adjusted EPS 80.8 1,524.8 5.3
Selected notes to the condensed consolidated interim financial information (continued)
8. Earnings per share (continued) Six months ended 30 June 2007 Weighted average Earnings number per Earnings of share shares Earnings per share from continuing operations ‚£'m
Million Pence
Profit for the period from continuing operations 27.4
Minority interests 0.3 Earnings attributable to ordinary shareholders 27.7 1,521.7 1.8 Basic EPS 27.7 1,521.7 1.8 Effect of share options and share awards - 20.9 - Diluted EPS 27.7 1,542.6 1.8
Adjusted earnings per share from continuing operations
Earnings attributable to ordinary shareholders 27.7 1,521.7 1.8 Add back / (deduct): Exceptional items, net of tax 5.5 - 0.3
Mark-to-market gain on convertible bonds designated at fair value through profit or loss, net of tax
(0.6) - -
Amortisation of intangible assets initially recognised
on acquisition, net of tax 28.7 - 1.9 Basic adjusted EPS 61.3 1,521.7 4.0 Effect of share options and share awards -
20.9 -
Effect of convertible bonds, excluding mark-to-market
gain, net of tax 2.1 64.6 (0.1) Diluted adjusted EPS 63.4 1,607.2 3.9 Six months ended 30 June 2007 Weighted average Earnings per number Earnings Share of shares
Earnings per share from discontinued ‚£'m Million
Penceoperations
Earnings attributable to ordinary 122.0 1,521.7
8.0shareholders Basic EPS 122.0 1,521.7 8.0
Effect of share options and share awards - 20.9
(0.1) Diluted EPS 122.0 1,542.6 7.9 Six months ended 30 June 2007 Weighted average Earnings per Earnings number Share of shares
Earnings per share from total operations ‚£'m Million
Pence
Earnings attributable to ordinary 149.7 1,521.7
9.8shareholders Basic EPS 149.7 1,521.7 9.8
Effect of share options and share awards - 20.9
(0.1) Diluted EPS 149.7 1,542.6 9.7
Selected notes to the condensed consolidated interim financial information (continued)
8. Earnings per share (continued)
Adjusted earnings per share, both basic and diluted, have been shown as thedirectors consider this to be helpful for a better understanding of theperformance of the Group's underlying business. The earnings measure used inadjusted earnings per share excludes, whenever such items occur: the results ofdiscontinued operations; exceptional items; mark-to-market gains or losses onfinancial assets and financial liabilities designated at fair value throughprofit or loss; and amortisation of intangible assets initially recognised atfair value in a business combination. All items adjusted are net of tax whereapplicable.
The weighted average number of shares excludes the shares held by employee share ownership plan trusts, which are treated as cancelled.
The convertible bonds were not included in the calculation of diluted earningsper share from continuing operations for the six months ended 30 June 2008 and2007 as they were anti-dilutive; however, the convertible bonds were dilutivefor the purposes of calculating adjusted diluted earnings per share fromcontinuing operations for the six months ended 30 June 2008 and 2007. Continuing and total operations were equal for the six months ended 30 June
2008. Capital expenditure
Additions to property, plant and equipment during the six months ended 30 June 2008 amounted to ‚£20.2 million (six months ended 30 June 2007: ‚£24.4 million).
The net book value of property, plant and equipment disposed during the sixmonths ended 30 June 2008 amounted to ‚£0.8 million (six months ended 30 June2007: ‚£8.7 million (including the disposals of Telecoms Products and Caran)). Provisions Vacant properties Restructuring Other Total ‚£'m ‚£'m ‚£'m ‚£'m At 1 January 2008 18.6 3.2 6.2 28.0 Charged in the period 19.2 14.4 5.8 39.4 Utilised in the period (3.2) (6.8) (5.1) (15.1) Unused amounts reversed in the period (0.6) (0.3) (0.8) (1.7) Unwinding of discount 0.5 - - 0.5 Exchange differences 0.5 0.3 0.5 1.3 At 30 June 2008 35.0 10.8 6.6 52.4 Analysed as: Current liabilities 26.1 Non-current liabilities 26.3 52.4
Share capital of Logica plc
30 30 June June 2007 2008 Authorised ‚£'m ‚£'m 2,250,000,000 (30 June 2007: 2,250,000,000) ordinary 225.0 225.0shares of 10p each 2008 2007 Allotted, called-up and fully paid Number ‚£'m Number ‚£'m At 1 January 1,457,646,079 145.8 1,535,698,482 153.6 Allotted under share option schemes 4,350,931 0.4 4,037,763 0.4 At 30 June 1,461,997,010 146.2 1,539,736,245 154.0 Selected notes to the condensed consolidated interim financial information(continued) Share premium 2008 2007 ‚£'m ‚£'m At 1 January 1,098.9 1,097.0
Premium on shares allotted under share 1.5
0.9option schemes At 30 June 1,100.4 1,097.9 13. Other reserves Capital Retained Treasury Translation redemption Merger earnings shares reserve reserve reserve Other Total ‚£'m ‚£'m ‚£'m ‚£'m ‚£'m ‚£'m ‚£'m At 1 January (336.2) (35.1) 93.9 8.4 619.0 2.3 352.32008 Net profit 5.2 - - - - - 5.2for the year Dividends (50.5) - - - - - (50.5)paid Share-based 5.0 - - - - - 5.0payment, net of tax Actuarial (1.5) - - - - - (1.5)losses, net of tax Other (2.1) - - - 1.4 - (0.7) Exchange - - 107.9 - - 0.2 108.1differences At 30 June (380.1) (35.1) 201.8 8.4 620.4 2.5 417.92008 At 1 January (302.5) (35.9) (6.2) - 617.1 1.9 274.42007 Net profit 149.7 - - - - - 149.7for the year Dividends (51.9) - - - - - (51.9)paid Share-based 5.8 - - - - - 5.8payment, net of tax Shares (72.4) (8.2) - - - - (80.6)purchased and cancelled Actuarial 5.2 - - - - - 5.2gains, net of tax Other - - - - 1.9 - 1.9 Exchange - - (14.6) - - - (14.6)differences At 30 June (266.1) (44.1) (20.8) - 619.0 1.9 289.92007
Selected notes to the condensed consolidated interim financial information (continued)
14. Reconciliation of operating profit to cash generated from continuingoperations Six months Six months ended ended 30 June 30 June 2008 2007 ‚£'m ‚£'m Operating profit: Continuing operations 29.0 43.9 Adjustments for: Share-based payments 5.2 5.3
Depreciation of property, plant and equipment 19.8
19.1
Loss on disposal of non-current assets 0.5
0.6
Profit on sale of subsidiaries and other businesses (0.3)
(0.2)
Amortisation of intangible assets 49.5
42.3
Impairment of property, plant and equipment included in 9.1
-restructuring costs
Derivative financial instruments 3.5
1.1
Non-cash element of expense for defined benefit plans (1.9)
(2.0) 85.4 66.2
Net movements in provisions 24.1
(4.3)
Movements in working capital:
Inventories (0.3) (0.5) Trade and other receivables (102.2) (43.3) Trade and other payables 51.5 (40.8) (51.0) (84.6)
Cash generated from continuing operations 87.5
21.2
Add back: Cash outflow related to restructuring and 13.8
16.1integration activities
Net cash inflow from trading operations 101.3 37.3 15. Reconciliation of movements in net debt At Other At 1 non-cash Exchange 30 June January Cash movements differences 2008 2008 flows ‚£'m ‚£'m ‚£'m ‚£'m ‚£'m Cash and cash 108.7 (26.8) - 6.3 88.2equivalents Bank overdrafts (9.1) 8.5 - (0.5) (1.1) 99.6 (18.3) - 5.8 87.1 Finance leases (7.2) 2.1 (1.8) (0.7) (7.6) Bank loans (354.7) (17.3) (1.0) (28.0) (401.0) Other loans (0.9) - - (0.1) (1.0) Convertible bonds (220.0) - (4.5) (17.6) (242.1) Net debt (483.2) (33.5) (7.3) (40.6) (564.6)
Selected notes to the condensed consolidated interim financial information (continued)
16. Acquisitions
On 15 February 2008, Energias de Portugal S.A. (EDP) notified the Group of itsexercise of the EDP Put Option, under the terms of the shareholders agreemententered into between EDP and Logica on 20 April 2005. Accordingly, EDP gavenotice that it will sell to Logica the remaining 40% interest in the equityshares of Edinfor - Sistemas Informƒ¡ticos S.A. On 7 March 2008, thetransaction completed with the Group paying consideration of ‚£42.1 million,resulting in additional goodwill of ‚£21.7 million.
In addition the Group made a small number of acquisitions during the period, in the Nordic region, comprising the purchase of businesses and transfer of employees as described below.
On 15 April 2008 the Group acquired the ERP consultancy business of Explit in Sweden, paying cash of ‚£0.1 million (SEK 1.3 million).
On 1 May 2008 the Group acquired the service desk operations of Synergi in theoil and gas sector for ‚£2.4 million (NOK 23.9 million), adding to the existingservices in this sector in Norway. This acquisition resulted in goodwill of ‚£1.8 million, attributable to anticipated synergies and the value of theworkforce.
On 1 June 2008 the Group acquired business handling services from Sampo bank in Finland for a consideration of ‚£0.8 million (¢â€š¬ 1.0 million).
It is impracticable for the Group to disclose separately the revenue and netprofit of the acquired businesses as the operations and financial reportinghave been integrated with the Group's pre-existing Nordics business. Had theseacquisitions occurred at the beginning of the financial period, the Group'srevenue and net profit would not be materially different from that reported inthe condensed consolidated income statement. 17. Contingent liabilities The Group's subsidiaries and the Company are currently, and may be from time totime, involved in a number of legal proceedings including inquiries from ordiscussions with governmental and taxation authorities. Whilst the outcome ofcurrent outstanding actions and claims remains uncertain, it is expected thatthey will be resolved without a material impact on the Group's financialposition. 18. Interim report
The interim report was approved by the board of directors on 13 August 2008 andcopies are available from Logica plc, Stephenson House, 75 Hampstead Road,London NW1 2PL and Logica, Prof. W.H. Keesomlaan 14, 1183 DJ Amstelveen, theNetherlands.Euro translation of selected financial information (unaudited) The Group has presented a translation of the consolidated income statement,balance sheet and cash flow statement into euros to assist users of the interimfinancial statements more familiar with that currency. The income statementand cash flow statement in euros have been calculated by converting thesterling figures to euros at an average rate of ¢â€š¬1.29 to ‚£1 (six months ended30 June 2007: ¢â€š¬1.48 to ‚£1). The balance sheet has been calculated byconverting the sterling figures to euros at the closing rate of ¢â€š¬1.26 to ‚£1 (31December 2007: ¢â€š¬1.36 to ‚£1, 30 June 2007: ¢â€š¬1.49 to ‚£1).
Euro translation of condensed consolidated income statement
For the six months ended 30 June 2008
Six months Six months ended ended 30 June 30 June 2008 2007 ¢â€š¬'m ¢â€š¬'m Continuing operations: Revenue 2,282.5 2,257.5 Net operating costs (2,245.1) (2,192.5) Operating profit 37.4 65.0 Analysed as:
Operating profit before exceptional items 96.2
76.2 Exceptional items (58.8) (11.2) Operating profit 37.4 65.0 Finance costs (28.7) (29.4) Finance income 7.1 6.4
Share of post-tax profits from associates 0.5
1.2 Profit before tax 16.3 43.2 Taxation (8.4) (2.7)
Profit for the period from continuing operations 7.9
40.5 Discontinued operation:
Profit from discontinued operation -
180.6 Net profit for the period 7.9 221.1 Attributable to: Equity holders of the parent 6.7 221.5 Minority interests 1.2 (0.4) 7.9 221.1 Earnings per share from continuing operations cents / share cents / share - Basic 0.5 2.7 - Diluted 0.5 2.7
Earnings per share from total operations
- Basic 0.5 14.5 - Diluted 0.5 14.4
Euro translation of condensed consolidated balance sheet
30 June 2008
See page 31 for basis of translation.
30 June 31 December 30 June 2008 2007 2007 ¢â€š¬'m ¢â€š¬'m ¢â€š¬'m Non-current assets Goodwill 2,186.6 2,181.4 2,227.2 Other intangible assets 444.7 486.9 535.7 Property, plant and equipment 164.1 179.7 195.8 Investments in associates 2.8 3.3 6.0 Financial assets 15.1 15.0 36.6 Retirement benefit assets 26.3 16.3 6.1 Deferred tax assets 60.2 74.1 75.4 Total non-current assets 2,899.8 2,956.7 3,082.8 Current assets Inventories 2.3 1.9 5.2 Trade and other receivables 1,487.3 1,388.8 1,485.7 Current tax assets 10.1 55.1 30.4 Cash and cash equivalents 111.1 147.8 340.9 Total current assets 1,610.8 1,593.6 1,862.2 Current liabilities Convertible debt (305.0) (299.1) (302.8) Other borrowings (142.8) (132.2) (39.0) Trade and other payables (1,218.1) (1,180.8) (1,293.9) Current tax liabilities (64.6) (76.3) (55.1) Provisions (32.9) (12.4) (27.0) Total current liabilities (1,763.4) (1,700.8) (1,717.8)
Net current (liabilities) / assets (152.6) (107.2)
144.4
Total assets less current liabilities 2,747.2 2,849.5 3,227.2 Non-current liabilities Borrowings (374.7) (373.6) (593.8)
Retirement benefit obligations (79.8) (68.8)
(59.9) Deferred tax liabilities (145.4) (170.0) (202.7) Provisions (33.2) (25.7) (30.2)
Other non-current liabilities (1.1) (1.0)
(0.9)
Total non-current liabilities (634.2) (639.1)
(887.5) Net assets 2,113.0 2,210.4 2,339.7 Equity Share capital 184.2 198.3 229.5 Share premium account 1,386.5 1494.5 1,635.9 Other reserves 526.5 479.1 431.9 Total shareholders' equity 2,097.2 2,171.9 2,297.3 Minority interests 15.8 38.5 42.4 Total equity 2,113.0 2,210.4 2,339.7
Euro translation of condensed consolidated cash flow statement
For the six months ended 30 June 2008
See page 31 for basis of translation.
Six Six months months ended ended 30 June 30 June 2008 2007 ¢â€š¬'m ¢â€š¬'m
Cash flows from continuing operating activities Net cash inflow from trading operations 130.7
55.2
Cash outflow related to restructuring and integration (17.8)
(23.8)activities
Cash generated from continuing operations 112.9
31.4 Finance costs paid (18.8) (30.2) Income tax received / (paid) 16.9 (34.6)
Net cash inflow / (outflow) from continuing operating 111.0
(33.4)activities
Net cash inflow from discontinued operating activities -
12.7
Cash flows from continuing investing activities
Finance income received 5.2 3.1
Dividends received from associates 0.9
1.3
Proceeds on disposal of property, plant and equipment 0.1
0.7
Purchases of property, plant and equipment (23.7)
(28.7)
Expenditure on intangible assets (15.9)
(6.5)
Purchase of minority interests (55.0)
-
Acquisition of subsidiaries and other businesses, net of cash (2.6)
(20.1)acquired
Disposal costs of prior year disposals (9.5)
-
Disposal of subsidiaries and other businesses, net of cash 3.0
42.8disposed
Disposal of discontinued operation, net of cash disposed -
328.6
Net cash (outflow) / inflow from continuing investing (97.5)
321.2activities
Cash flows from continuing financing activities Proceeds from issue of new shares 2.5
1.6 Purchase of own shares - (4.0) Proceeds from bank borrowings 66.7 - Repayments of bank borrowings (44.4) (138.7)
Repayments of finance lease principal (2.7)
(3.0)
Repayments of other borrowings -
(0.1)
Proceeds from forward contracts 5.4
3.7
Dividends paid to the Company's shareholders (65.1)
(76.8)
Dividends paid to minority interests -
(0.6)
Net cash outflow from continuing financing activities (37.6)
(217.9)
Net (decrease) / increase in cash, cash equivalents and bank (24.1)
82.6overdrafts
Cash, cash equivalents and bank overdrafts at the beginning of 145.4
223.3the period
Net (decrease) / increase in cash, cash equivalents and bank (24.1)
82.6overdrafts
Effect of foreign exchange rates (11.6)
3.1
Cash, cash equivalents and bank overdrafts at the end of the 109.7
309.0period
Independent review report to Logica plc
Introduction We have been engaged by the Company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 30 June2008, which comprises the income statement, balance sheet, statement ofrecognised income and expense, cash flow statement and related notes. We haveread the other information contained in the half-yearly financial report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of financialstatements. Directors' responsibilities The half-yearly financial report is the responsibility of, and has beenapproved by, the directors. The directors are responsible for preparing thehalf-yearly financial report in accordance with the Disclosure and TransparencyRules of the United Kingdom's Financial Services Authority. As disclosed in note 1, the annual financial statements of the group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard34, "Interim Financial Reporting", as adopted by the European Union. Our responsibility Our responsibility is to express to the company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. This report, including the conclusion, has been prepared for and onlyfor the company for the purpose of the Disclosure and Transparency Rules of theFinancial Services Authority and for no other purpose. We do not, in producingthis report, accept or assume responsibility for any other purpose or to anyother person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing. Scope of review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, 'Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us tobelieve that the condensed set of financial statements in the half-yearlyfinancial report for the six months ended 30 June 2008 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. PricewaterhouseCoopers LLPChartered AccountantsLondon14 August 2008 Notes:
The maintenance and integrity of the Logica plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Adjusted operating margin of 6.8% excluding one-off costs of ‚£27 million in 2007 related to management changes and one-off contract provisions.
vendorRelated Shares:
LOG.L