29th Aug 2007 07:00
29 August 2007
LogicaCMG reports first half results and updates on Board changes
Financial headlines
For the six months ended 30 June 2007, LogicaCMG plc financial results were as follows, with comparatives on a restated basis1 for 2006:
Continuing operations
Revenue up 36.2% at ‚£1,525.3 million (2006: ‚£1,120.1 million)
Operating profit up 13.1% at ‚£43.9 million (2006: ‚£38.8 million)
Profit before tax of ‚£29.2 million (2006: ‚£26.8 million)
Basic earnings per share, including exceptional items and amortisation of acquisition related intangibles, of 1.8p (2006: 0.6p)
Cash conversion2 of 44% (2006: (1%)), based on net cash inflow from trading operations of ‚£39.8 million (2006: ‚£0.8 million outflow)
Group
Profit from discontinued operations at ‚£122.0 million (2006: ‚£1.4 million)
Net profit at ‚£149.4 million (2006: ‚£10.3 million)
Net debt at 30 June 2007 of ‚£399.1 million (31 December 2006: ‚£557.1 million)
Interim dividend up 4.5% at 2.3p (2006: 2.2p)
Summary operational results
For the six months ended 30 June 2007, LogicaCMG plc results were as follows, with comparatives on a pro forma constant currency basis3 for 2006:
Revenue up 3.5% on a pro forma basis to ‚£1,525.3 million (2006: ‚£1,474.3 million)
Revenue growth above the market in France, Nordics, Netherlands and Germany partly offset by an 8.3% decline in UK revenue due to weakness in commercial sectors
Adjusted operating profit4 down 17.1% on a pro forma basis to ‚£89.7 million (2006: ‚£108.2 million)
Declines in the UK and International businesses partly offset by higher adjusted operating profit in the Netherlands and Germany
Most significant contributor to decline in profit and margin was a ‚£13.6 million write-off on a previously disclosed UK project cost overrun
Adjusted operating margin4 at 5.9% (2006: 7.3%), with strong performance in Germany delivering an adjusted operating margin4 of 3.6% (2006: (7.2%))
Adjusted basic EPS5 from continuing operations up 11.1% at 4.0p (2006 actual: 3.6p)
Improvements in the tax rate to 18% offset lower UK profitability
Update on Board changes
David Tyler to become Chairman on retirement of Cor Stutterheim
Progress being made in the search for a new Chief Executive
Commenting on current trading, Jim McKenna, Chief Operating Officer, said:
"Our outlook on the market remains unchanged, with healthy demand in our major markets.
"A key priority for the second half is improving the operational performance inthe UK. We will also be working on recruiting the right people in the rightplaces to grow the business and on expanding the use of common systems andprocesses throughout the larger group."
Commenting on the Board changes announced today, Cor Stutterheim, Chairman, said:
"I am delighted that we have been able to secure my succession with the appointment of David Tyler. David brings a wealth of experience, which will be invaluable to the Board.
"I would like to express my gratitude to George Loudon, on behalf of the Board,for his very important contribution to the business. George leaves at the endof nine years of service, over the course of which he has provided extremelyvaluable strategic insight and business advice as LogicaCMG transformed itselfinto a leading European IT services player.
"It has been a great pleasure chairing the Board of LogicaCMG over the last five years. I believe that we have built a strong platform for future growth and I wish the group well in the next phase of its development."
Commenting on the Board changes announced today, David Tyler, joint Deputy Chairman, said:
"I want to express, on behalf of the Board, our sincere thanks to CorStutterheim. Cor has had an outstanding career in the IT services industry. Hewas the driving force behind the very successful development of CMG from itsearly days in 1970 to its merger with Logica five years ago. As Chairman ofLogicaCMG, he has helped to guide the company through a period of rapidexpansion. The Board thanks him very much for his long-standing commitment andcontribution to the company and wishes him well for the future.
"The Board is pleased with the progress being made in the search for a new Chief Executive; we remain focused on securing the best possible candidate to take LogicaCMG forward."
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/Craig Breheny +44 (0) 20 7404 5959
Notes:
1. 2006 reported figures have been restated for the disposal of the Telecoms Products business. See notes to the accounts for details.
2. Cash conversion represents net cash inflow from trading operations divided byadjusted operating profit. Net cash inflow from trading operations is cashgenerated from operations before cash flows from restructuring and integrationcharges and other exceptional items. 3. Comparatives are based on pro forma IT services and exclude pdv.com and NoLimits which were disposed of in 2006. Adjustments have been made fornon-recurring passthrough in France which was reported in 2006. Thecomparatives have also been adjusted to include Caran to the beginning of June2006, the remainder of WM-data for the full year and the acquired SiemensBusiness Services for the nine months from March 2006 and to reflect currentexchange rates as listed below. 2006 pro forma constant currency revenuenumbers are as follows: 2006 H1 H2 FY UK 364.6 353.8 718.4 Nordics 395.2 370.1 765.3 France 262.8 260.5 523.3 Netherlands 219.1 225.5 444.6 Germany 73.9 87.5 161.4 International 158.7 168.1 326.8 Total 1,474.3 1,465.5 2,939.8
4. Adjusted operating profit and margin are from continuing operations and, where applicable, before exceptional items and amortisation of intangible assets initially recognised at fair value in a business combination.
H1'06 Growth Pro H1'06 Pro H1'07 forma Restated forma Growth Operating profit 43.9 38.8 13.1% Add back impact of: Exceptional items 7.6 23.6
Amortisation of acquisition related
intangibles 38.2 11.5 Adjusted operating profit 89.7 108.2 73.9 (17.1%) 21.4%
5. Adjusted earnings per share is based on net profit attributable to ordinary shareholders, excluding the following items:
discontinued operations
exceptional items
mark-to-market gains and losses on financial assets and financial liabilities designated at fair value through profit or loss
amortisation of intangible assets initially recognised at fair value in a business combination
tax on the items above, where applicable
6. Exchange rates used are as follows:
H1'07 FY'06 H2'06 H1'06 ‚£1 / ¢â€š¬ Average 1.48 1.47 1.48 1.46
End of period 1.49 1.48 1.48 1.45
‚£1 / SEK Average 13.67 13.57 13.58 13.56
End of period 13.76 13.39 13.39 13.32
Overview
In the first half of 2007, there was good demand for IT services in all ourmajor markets. We achieved strong pro forma revenue growth in the Nordics,France, Netherlands and Germany. In the UK, we saw weakness in the commercialsectors in spite of good underlying demand, but achieved strong Public Sectorgrowth. Selective price increases and more efficient delivery offset increaseduse of subcontractors to meet demand in France and the Nordics. We had a total of 38,496 employees at the end of June, which included 3,300 SAPconsultants. Excluding the impact of the previously announced disposals ofTelecoms Products and Caran, our headcount increased by around 2% in the firsthalf. In a competitive market, we have seen attrition for the group at 15%,slightly below the 16% attrition rate for 2006. The acquisition of WM-data (completed in October 2006) contributed to an upliftof 36.2% in group revenue to ‚£1,525.3 million, compared to the first half of2006. This represented growth of 3.5% on a pro forma constant currency basis. REVENUE BY GEOGRAPHY Growth H1'07 on H1'06 H1'06 H1'06 FY'06 Share H1'07 Pro forma Actual Pro forma Pro forma H1'07 ‚£'m ‚£'m ‚£'m % ‚£'m % UK 334.2 364.6 364.6 (8.3) 718.4 21.9 Nordics 424.0 395.2 2.1 7.3 765.3 27.8 France 289.4 262.8 284.3 10.1 523.3 19.0 Netherlands 237.2 219.1 222.1 8.3 444.6 15.6 Germany 81.1 73.9 81.1 9.7 161.4 5.3 International 159.4 158.7 165.9 0.4 326.8 10.4
Total continuing 1,525.3 1,474.3 1,120.1 3.5 2,939.8 100.0
Strong pro forma growth in the Nordics, France, the Netherlands and Germany offset a decline in the UK in the first half. The Nordics surpassed the UK in revenue terms, making it our largest business by revenue. Revenue in the International business was at the same level when compared to last year but reflected a changing contract mix.
REVENUE BY MARKET SECTOR Growth H1'07 on H1'06 H1'06 FY'06 Pro H1'06 Pro Pro Share H1'07 forma Actual forma forma H1'07 ‚£'m ‚£'m ‚£'m % ‚£'m % Public Sector 427.9 402.7 284.3 6.3 797.4 28.1 Industry, Distribution & 474.1 446.9 294.5 6.1 869.4 31.1Transport Energy & Utilities 234.0 223.1 204.0 4.9 458.9 15.3 Financial Services 272.0 255.8 227.7 6.3 531.1 17.8 Telecoms and Media 117.3 145.8 109.6 (19.5) 283.0 7.7 Total continuing 1,525.3 1,474.3 1,120.1 3.5 2,939.8 100.0
We saw pro forma growth of over 6% when compared to the first half of last yearin our three largest market sectors. Approximately half the decline in theTelecoms and Media sector was due to the strong revenue recorded under theNatrindo contract in Asia in the first half of last year. Pro forma growth ofalmost 5% in Energy & Utilities reflected the combination of a decline in theUK and slower growth in the Netherlands, offset against strong growth in Franceand the Nordics.
Including WM-data, our top 10 customers accounted for 16% of group revenue in the first half of 2007 (FY 2006: 15%).
The percentage of revenue from outsourcing increased from 28% to 31% on a restated basis, reflecting the addition of WM-data into the group. Over time, we expect to see continued progress towards the higher end of our target of 30-40% as a result of the following:
* a general market trend to consolidate suppliers resulting in more complex
deals being awarded to larger suppliers with a more comprehensive service
delivery capability and specialised business knowledge; and
* a shift in buying behaviour in continental Europe toward more outsourcing
based contracts. Overall, we had approximately 6,900 people in our onshore, nearshore andoffshore delivery centres at the end of June. The ability to blend the skillsfrom across these competency centres to provide value for money at minimal riskis fundamental to our customers' requirements. Our capability to deliver ablended model encompasses application development and support, testing, productengineering and BPO (Finance & Accounting, HR and procurement). We intend tocontinue building this capability with refinements to the model as we deploy itmore widely within the larger group through 2007 and 2008. We continue to see increased interest in our global service delivery capabilityfrom customers in the Nordics and Germany, with some small initial orders forcustomers in Finland in the first half. Demand for lower cost capability amongour French customer base led to a significant increase in the number ofresources deployed on customer projects in Morocco and India as well as atregional French centres. Our Dutch business expects to have doubled its use ofour global service delivery organisation by the end of 2007. The Philippinesoperation is expected to have over 150 people by the end of 2007, initiallyconcentrating on supporting internal functions. Adjusted operating profit was ‚£89.7 million, compared to ‚£108.2 million on apro forma basis last year. This represents an adjusted operating margin of5.9%, down from 7.3% on a pro forma basis last year. Margin improvements inGermany and the Netherlands were partially offset by a disappointingperformance in the UK, a slight decrease in France due to higher use ofsubcontractors and a lower margin in the International business in the firsthalf.
Amortisation of intangible assets initially recognised on acquisition was ‚£38.2 million (2006: ‚£11.5 million), principally as a result of the WM-data and Unilog acquisitions.
The net exceptional items of ‚£7.6 million represent restructuring costs relatedto the integration of WM-data (2006: ‚£23.6 million). Total restructuring andintegration costs are expected to be ‚£15.7 million in 2007 and ‚£5.2 million in2008. Higher financing expense and amortisation of intangibles compensated by lowerexceptional costs resulted in a profit before tax of ‚£29.2 million (2006:
‚£26.8million). The tax charge on continuing operations for the six months ended 30 June 2007,before share of post-tax profits from associates, exceptional items andamortisation of intangible assets initially recognised on acquisition was ‚£13.4million, representing an effective tax rate of 18% (2006: ‚£19.3 million or31.2% effective tax rate). Adjusted basic earnings per share from continuing operations were 4.0p (2006:3.6p) on a weighted average number of shares of 1,521.7 million in the firsthalf of 2007. Basic earnings per share from continuing operations, whichincluded higher amortisation of acquisition-related intangibles than last year,were 1.8p (2006: 0.6p).
The profit from discontinued operations was ‚£122.0 million (2006: ‚£1.4 million). This comprises a profit on the sale of the Telecoms Products business of ‚£152.8 million less the operating loss prior to disposal of ‚£22.6 million and taxation of ‚£8.2 million.
Cash generated from operations was ‚£23.7 million (2006: ‚£(14.2) million).
The
net cash inflow from trading operations was ‚£39.8 million, giving a cash conversion of 44% (2006: (1%)).
Group net debt at 30 June 2007 was ‚£399.1 million, compared to ‚£557.1 million at 31 December 2006. This decrease is largely attributable to a net inflow from the net proceeds of the Telecoms Products disposal of ‚£222.0 million offset against an outflow of ‚£2.7 million as a result of the share buyback.
Dividend The directors have declared an interim dividend of 2.3 pence per share (2006:2.2p) to be paid on 19 October 2007 to shareholders on the register at theclose of business on 21 September 2007. This represents an increase of 4.5%over the dividend in the first half of 2006. Outlook Our outlook on the market remains unchanged, with healthy demand in our majormarkets and European growth expected to be between 4% and 6%. As indicated atthe time of our May trading update, we still expect revenue growth around thelower end of this range for 2007 (based on underlying revenue for 2006 of ‚£2,939.8 million at current exchange rates and taking into account acquisitionsand disposals).
From an operational perspective, priorities for the business for the remainder of 2007 continue to be:
1)improved operational performance in the UK business, with sequential revenue growth in the second half;
2)continued progress on WM-data integration, with delivery of expected cost savings of ‚£5.0 million in 2007;
3)further progress on recruitment and attrition; and
4)planning for further implementation of common operational systems and processes throughout the larger group.
We have made some progress on these priorities already in the second half, withadditional cross-selling wins in the Nordics and new business won in the UKsince the end of June. Our contracted order backlog and expected renewals nowrepresent 70% of our second half forecast for the UK commercial sectors. OurUK Public Sector order backlog remains strong with steady progress in winningnew orders. Given the progress we are making in the UK, second half margin for the group islikely to be above 9.0% but behind the 9.9% level achieved in the second halfof 2006. The effective tax rate (before share of post-tax profits from associates,exceptional items and amortisation of intangible assets initially recognised onacquisition) is now expected to be 18% for 2007 with the tax rate beyond 2007expected to be around 23%. The ‚£130 million share buyback was initiated in June following the disposal ofthe Telecoms Products business. To date, we have completed just under half ofthat amount and expect to complete the share buyback programme by the end of2007.
Review of Continuing Operations
Note: Comparatives are based on pro forma IT services and exclude pdv.com andNo Limits. Adjustments have been made for non-recurring passthrough in Francewhich was reported in 2006. The comparatives have also been adjusted toinclude Caran to the beginning of June 2006, the remainder of WM-data for thefull year and the acquired Siemens Business Services for the nine months fromMarch 2006 and to reflect current exchange rates. This is intended to providea more meaningful comparison to the prior year. UNITED KINGDOM Growth H1'07 on H1'06 H1'06 H1'06 Share H1'07 Pro forma Actual Pro forma H1'07 ‚£'m ‚£'m ‚£'m % % Public Sector 186.7 174.0 174.0 7.3 55.9
Industry, Distribution & Transport 48.7 67.5 67.5 (27.9) 14.6
Energy & Utilities 49.0 53.1 53.1 (7.7) 14.6 Financial Services 31.4 39.8 39.8 (21.1) 9.4 Telecoms and Media 18.4 30.2 30.2 (39.1) 5.5 Total 334.2 364.6 364.6 (8.3) 100.0 Outsourcing % 41 39 39 Adjusted operating margin % 1.3 9.1 9.1
Due to weakness in the commercial sectors, first half revenue was down 8.3% onlast year to ‚£334.2 million. The commercial sector weakness was partiallyoffset by Public Sector revenue growth of 7.3% in the first half. As a result,the Public Sector represented 55.9% of revenue compared to 47.7% in the firsthalf of 2006. The impact of the IDT contract concluded at the end of last yearrepresented approximately half the decline in UK revenue in the first half.
In
addition to the decline in IDT, our smaller commercial sectors (FinancialServices and Telecommunications) were down. Increased M&A activity in theFinancial Services sector had a dampening effect on consulting volumes in thesecond quarter. In Telecommunications, volumes were impacted as we completedsome development projects.
A strong Public Sector order intake continued to drive the book to bill of1.04:1, with the Public Sector representing just over 60% of the ordersbooked. Among these were orders under extensions or new contracts with anumber of UK Public Sector clients such as the Ministry of Defence andCompanies House. Within the Public Sector, demand for project work droveincreased orders in Space and Defence. Within the commercial sectors, we havemade progress on winning orders and identifying new opportunities within ourexisting framework agreements in the Energy, Utilities and Telecoms business. We have also been selected as the preferred supplier for managed testing withina major telecoms contract. Our contracted order backlog and expected renewalsrepresented over 60% of our second half revenue forecast for the commercialsectors at the end of June. At the end of July, this had increased to 70%. Including the weighted pipeline of opportunities in these sectors, we havevisibility of substantially all our commercial sector revenue. In line withour previous guidance, we expect sequential revenue growth in the second half,with full year UK revenue slightly lower than 2006. Adjusted operating profit was ‚£4.4 million (2006: ‚£33.3 million), with adjustedoperating margin at 1.3%. This reflected the ‚£13.6 million write-off on thepreviously announced UK project cost overrun, costs associated with overheadreduction and a disappointing performance across commercial market sectors.Public Sector margins remain strong, benefiting from additional volumes of
workin the sector.NORDICS Growth H1'07 on H1'06 H1'06 H1'06 Share H1'07 Pro forma Actual Pro forma H1'07 ‚£'m ‚£'m ‚£'m % % Public Sector 121.8 120.4 - 1.2 28.7
Industry, Distribution & Transport 199.7 173.4 0.1 15.2 47.1
Energy & Utilities 26.5 23.1 - 14.7 6.3 Financial Services 41.6 38.2 1.1 8.9 9.8 Telecoms and Media 34.4 40.1 0.9 (14.2) 8.1 Total 424.0 395.2 2.1 7.3 100.0 Outsourcing % 33 - - Adjusted operating margin % 8.7 8.9 (23.8)
Revenue in the Nordics was up 7.3% on a pro forma basis to ‚£424.0 million. This included Caran revenue of ‚£27 million up to 4 June 2007 (2006: ‚£25million). The Swedish business continues to be the major driver of regionalgrowth, with a steady demand for ongoing work with existing customers. Itrepresented 56% of Nordics revenue in the first half. IDT was strong as aresult of good overall demand, strong growth in the Caran business and thefinal phase of a customer contract. The Energy and Utilities market alsocontinues to be an important driver of growth. Swedish elections in 2006 had adampening effect, resulting in slightly lower growth in the Public Sector inthe first half. Telecoms revenue was down as a result of an anticipatedreduction in license sales within the billing solutions activity. Initial cross-selling wins have been encouraging, with ‚£13 million of smallcross-selling orders recorded in the first half. New or extended outsourcingagreements have also been signed with Volvo Cars, Alfa Laval, facilitiesservices company ISS, government defence customer FMV and Swedish alcoholretailer Systembolaget. In addition, our recently announced win with Vƒ¤xjƒ¶Energi in Sweden, while small, demonstrates the Energy and Utilities expertisewhich we are able to leverage across the group. Despite having absorbed a share of group overheads which included costs relatedto cross-selling and participation in the group's share-based paymentsarrangements, adjusted operating margin was broadly unchanged at 8.7% (2006:8.9%). Excluding these costs, underlying margins improved slightly. Thetransfer of a number of internal support and software development andmaintenance functions to India has begun. The changes put in place this yearwill allow us to achieve 2007 cost savings of ‚£5 million, which will be largelysecond half weighted. Although 2008 cost savings will come at a slightlyslower pace than expected in the context of higher revenue growth, we nowexpect ‚£13 million of cost savings in 2008 and annualised cost savings of ‚£15million from 2009. We continued to deliver double-digit operating margins inFinland. Adjusted operating profit was ‚£36.8 million (2006: ‚£35.0 million). FRANCE Growth H1'07 on H1'06 H1'06 H1'06 Share H1'07 Pro forma Actual Pro forma H1'07 ‚£'m ‚£'m ‚£'m % % Public Sector 33.1 31.1 31.6 6.4 11.4
Industry, Distribution & Transport 109.7 105.0 124.2 4.5 37.9
Energy & Utilities 42.5 31.6 32.0 34.5 14.7 Financial Services 77.3 72.3 73.3 6.9 26.7 Telecoms and Media 26.8 22.8 23.2 17.5 9.3 Total 289.4 262.8 284.3 10.1 100.0 Outsourcing % 32 28 26 Adjusted operating margin % 7.6 7.9 7.6 In France, revenue was up 10.1% on a pro forma basis to ‚£289.4 million, withincreased headcount and greater use of subcontractors allowing us to meetdemand. With the exception of IDT, we saw growth of more than 6% across allsectors. Existing contracts with EDF, Carrefour and the French Ministry ofDefence were contributors to growth. Demand for payments consulting along withrevenues under the cross-selling contract announced last year drove the growthin Financial Services. The Public Sector grew by 6.4% in spite of slower publicspending in an election year. Order intake was healthy, with good progress in the Public Sector and FinancialServices. New Public Sector projects included the Foreign Ministry and theEmployment Agency. We have been awarded six individual contracts greater than¢â€š¬5 million, totalling approximately ¢â€š¬70 million. This includes a ¢â€š¬15 millionapplications management project for a major bank, following our selection as apreferred supplier earlier in the year. Adjusted operating profit was ‚£22.1 million (2006: ‚£20.7 million), withadjusted operating margin broadly stable at 7.6%. Margin improvements as aresult of increased utilisation and integration cost savings were offsetslightly by increased use of subcontractors and salary increases to retain keystaff in a competitive labour market. Recruitment was strong in the firsthalf of 2007. Use of global service delivery model has also increased, with afurther 100 GSD employees deployed on projects for French customers andincreased use of regional service centres within France. NETHERLANDS Growth H1'07 on H1'06 H1'06 H1'06 Share H1'07 Pro forma Actual Pro forma H1'07 ‚£'m ‚£'m ‚£'m % % Public Sector 69.2 57.9 58.7 19.5 29.2
Industry, Distribution & Transport 53.2 52.5 53.2 1.3 22.4
Energy & Utilities 24.5 24.7 25.0 (0.8) 10.3 Financial Services 77.3 71.2 72.2 8.6 32.6 Telecoms and Media 13.0 12.8 13.0 1.6 5.5 Total 237.2 219.1 222.1 8.3 100.0 Outsourcing % 15 13 13 Adjusted operating margin % 8.5 8.1 8.1
In the Netherlands, revenue was up 8.3% to ‚£237.2 million. We continue toexpect full year revenue growth to outperform the market. The Public Sectorgrowth was particularly strong in the first half and a major contributor tostrong year on year revenue growth in the Netherlands. A number of contractswith existing customers contributed to growth of more than 8% in FinancialServices. Outsourcing and risk and compliance continue to be drivers inFinancial Services while Public Sector growth is linked to ongoing investmentin IT-driven initiatives to deliver government services to the public. As wetransition the business in the Netherlands to more outsourcing, we are seeinglonger contract cycles which resulted in slightly slower revenue growth in
somesectors in the first half. IDT growth was slower when set against a strongfirst half in 2006.
Book to bill was 1.06:1. Despite a competitive market, the pipeline in theNetherlands remains solid with good opportunities in the Public Sector andFinancial Services. Among the orders signed in the first half was anapplications management outsourcing contract for Philips in the Netherlands aswell as a systems integration project for nutrition and pharmaceutical companyDSM. In the Public Sector, we were awarded contracts with the Dutch Councilfor Judiciary and the Ministry of Internal Affairs. In early July, we signed aletter of intent for the divestment of our non-core payroll business. Thedivestment will not have a material impact on 2007 revenue (it accounted forless than 2% of total Netherlands revenue in 2006). The business beingdivested provides solutions primarily for the SME and local government marketand represented only one-quarter of the overall HR and payroll product servicesrevenue in the Netherlands. We continue to invest in the core HR and payrollBPO solutions business. Adjusted operating profit was ‚£20.1 million (2006: ‚£17.9 million) with adjustedoperating margin continuing to improve on last year to 8.5% (2006: 8.1%). Thelevel of subcontractors remained stable with good progress on recruitment andlower attrition in the second quarter. GERMANY Growth H1'07 on Share H1'06 H1'06 H1'06 Pro forma H1'07 H1'07 Pro forma Actual ‚£'m ‚£'m ‚£'m % % Public Sector 3.0 4.9 5.0 (38.8) 3.7
Industry, Distribution & Transport 38.7 35.1 35.6 10.3 47.7
Energy & Utilities 10.3 10.8 10.9 (4.6) 12.7 Financial Services 19.0 13.2 19.5 43.9 23.4 Telecoms and Media 10.1 9.9 10.1 2.0 12.5 Total 81.1 73.9 81.1 9.7 100.0 Outsourcing % 16 20 18 Adjusted operating margin % 3.6 (7.2) (6.7)
We have made further progress in Germany with revenue growth of 9.7% on a pro forma basis in the first half to ‚£81.1 million. This was mainly driven by growth in IDT and Financial Services. Demand for applications management outsourcing and use of our global service delivery capability is increasing while consulting demand remains healthy.
We also saw continued profitability in the second quarter with first halfadjusted operating profit of ‚£2.9 million (2006: ‚£(5.3) million). Adjustedoperating margin was 3.6%, as we began to see the benefit of integration costsavings and improved utilisation. Headcount increased by around 2% in thefirst half, with over 200 external recruits joining the business in acompetitive labour market.INTERNATIONAL Growth H1'07 on H1'06 H1'06 H1'06 Share H1'07 Pro forma Actual Pro forma H1'07 ‚£'m ‚£'m ‚£'m % % Public Sector 14.1 14.4 15.0 (2.1) 8.9
Industry, Distribution & Transport 24.1 13.4 13.9 79.9 15.1
Energy & Utilities 81.2 79.8 83.0 1.8 50.9 Financial Services 25.4 21.1 21.8 20.4 15.9 Telecoms and Media 14.6 30.0 32.2 (51.3) 9.2 Total 159.4 158.7 165.9 0.4 100.0 Outsourcing % 37 36 35 Adjusted operating margin % 2.1 4.2 4.2
Revenue in the International business was at ‚£159.4 million, up 0.4% on a proforma basis when compared to last year. As expected, the Telecoms and Mediabusiness declined (due mainly to the completion of the development phase of theNatrindo contract) but this was largely offset by growth in IDT mainly as aresult of increased revenue from European outsourcing contracts signed withInBev in 2006. Public Sector revenue was down slightly when compared to thefirst half of 2006 when we deployed a number of projects in the Middle East.
Revenue from the Edinfor business remains at a similar level to last year and continued to represent just over a third of International revenue.
In Australia, we grew well above the market, with double-digit revenue growthin our two largest sectors (Energy and Utilities and Public Sector) and strongmomentum in our IDT business. Book to bill was 1.07:1 (excluding EDP where a significant proportion ofrevenue is being delivered under the EDP order signed in April 2005). Amongthe orders signed in the first half were an ‚£8.1 million, 5-year applicationsand infrastructure outsourcing contract for natural gas distributor Comgƒ¡s inBrazil and a contract renewal with a major Australian energy company.
Adjusted operating profit was ‚£3.4 million (2006: ‚£6.6 million), with adjusted operating margin at 2.1%. Among the movements were a decline in Asian profitability and improved profitability in Australia as a result of improved utilisation. Our ongoing requirement to reduce cost and drive efficiency improvements to compensate for planned price reductions under the EDP contract resulted in a ‚£2 million expense in the first half.
Accounting and other matters
Acquisitions and disposals
On 31 March 2007, the group acquired the outsourcing, IT infrastructure and systems integration business of Siemens Business Systems AS in Norway for a total consideration of ‚£11.6 million. The acquisition comprised the purchase of the business assets and liabilities together with the transfer of approximately 180 employees.
The group completed the disposal of its industrial design and productdevelopment business Caran to Swedish conglomerate JCE Group on 4 June 2007 for‚£24.1 million. The disposal process for Caran included a rationalisation anddisposal of its previous business ventures with Saab. The sale of the group's50% associate interest in Caran Saab Engineering AB on 1 April 2007 generated aprofit of ‚£3.0 million. Together with the ‚£2.8 million loss on disposal of theCaran business sold to JCE Group on 4 June 2007, the group's combined profitfrom the disposal of all Caran-related business activities was ‚£0.2 million. The group announced it had completed its disposal of the Telecoms Productsbusiness to an investment consortium led by Atlantic Bridge Ventures on 19 June2007 for ‚£264.8 million, with a net cash inflow from the discontinued operationof ‚£230.6 million following the ‚£15.0 million loan to Acision (as announced atthe time of the transaction), disposal costs of ‚£4.8 million and a tradingbalance with the Group of ‚£14.4 million. The results of the Telecoms Productsbusiness are reported as discontinued operations in the half year accounts. The profit from the discontinued operation was ‚£122.0 million, resulting from again on disposal of ‚£152.8 million, an operating loss for the period of ‚£22.6million and a net tax charge of ‚£8.2 million. Share buyback
The previously announced ‚£130 million share buyback was initiated following the disposal of the Telecoms Products business. At the close of business on 28 August, we had purchased 41.6 million shares in the market (representing approximately 2.7% of the issued share capital at the end of 2006) in the market at an average price of 153.35p. We now expect the weighted average number of shares for the year for EPS purposes to be approximately 1,470 million.
Minority interests
The proceeds from the Telecoms Products disposal are to be partially used to buy out remaining minority interests in Edinfor and WM-data. EDP has a put option in respect of its remaining 40% interest in Edinfor. This became exercisable on 21 April 2007.
At the time of the WM-data transaction, LogicaCMG acquired 95.33% of thecompany's issued share capital. The compulsory redemption process forLogicaCMG to acquire the remaining 4.67% from WM-data minority shareholders
isprogressing. We currently expect the redemption process to complete by mid2008. Taxation Based on the progress of the legal structure integration following theacquisitions in recent years, we are now able to accelerate the benefit ofhistoric tax losses in 2007. Combined with other anticipated tax deductions,we now expect the effective tax rate on continuing operations (calculated as apercentage of adjusted operating profit before share of post-tax profits fromassociates, exceptional items and amortisation of intangible assets initiallyrecognised on acquisition) in 2007 to be around 18%. The tax rate beyond 2007is expected to be around 23%.
The tax charge on continuing operations for the six months ended 30 June 2007 was ‚£13.4 million, representing an effective tax rate of 18% (2006: ‚£19.3 million or 31.2% effective tax rate).
The total tax charge for the six months ended 30 June 2007 is ‚£1.8 million(2006: ‚£17.9 million tax charge) of which a tax credit of ‚£11.6 million (2006:‚£1.5 million) relates to exceptional items and amortisation of intangibleassets initially recognised on acquisition. The remaining decrease is mainlydue to the use of unrecognised tax losses brought forward. The effective tax rate was 10.8% for the period (2006: 37.9%) before share ofpost-tax profits from associates and exceptional items and after amortisationof intangible assets initially recognised on acquisition.
Update on Non-Executive Board Changes
Further to our ongoing review of the Board's size and structure, a number of changes are being announced today.
Cor Stutterheim has decided to retire from his position as Chairman of the Board with effect from 1 November 2007, having helped to create a strong platform for growth at LogicaCMG. Cor has been Chairman since the merger of Logica and CMG in December 2002. He was Executive Chairman of CMG for seven years prior to the merger.
David Tyler will take over as Non Executive Chairman on Cor's retirement. Davidjoined the Board in July 2007 as Non Executive Deputy Chairman. David has hada wide-ranging business career, most recently as Finance Director of GUS plc.He is currently Chairman of 3i Quoted Private Equity Limited and a NonExecutive Director of Reckitt Benckiser plc, Experian Group Limited andBurberry Group plc. As a member of the Nominations Committee, David willcontinue to play an active role in the selection of the new Chief Executive. He will become Chairman of the Nominations Committee on Cor's retirement. George Loudon will retire from his position as Non Executive Director on 1November 2007, in line with best practice governance principles, having servedthree terms of office. George joined CMG as a Non Executive Director in 1998and has been a Non Executive Director of LogicaCMG since the merger of Logicaand CMG in December 2002. Update on Chief Executive We continue to make progress with our search for a Chief Executive to replaceDr Martin Read. As previously announced, Jim McKenna, currently ChiefOperating Officer, will become interim Chief Executive from 21 September andwill continue in the position until the permanent Chief Executive has assumedthe role.
Next financial calendar dates
LogicaCMG's next scheduled communications to the market are:
Monday, 5 November 2007 Trading updateWednesday, 27 February 2008 FY 2007 results
Condensed consolidated income statement (unaudited) For the six months ended 30 June 2007
Restated* Six months six months ended ended 30 June 30 June 2007 2006 Note ‚£'m ‚£'m Continuing operations: Revenue 2 1,525.3 1,120.1 Net operating costs (1,481.4) (1,081.3) Operating profit 2,4 43.9 38.8 Analysed as:
Operating profit before exceptional 51.5
62.4 items Exceptional items 3 (7.6) (23.6) Operating profit 43.9 38.8 Finance costs (19.8) (16.3) Finance income 4.3 4.4
Share of post-tax profits / (losses) 0.8
(0.1) from associates Profit before tax 29.2 26.8 Taxation 6 (1.8) (17.9)
Profit for the period from continuing 27.4
8.9 operations Discontinued operation:
Profit from discontinued operation 7 122.0
1.4 Net profit for the period 149.4 10.3 Attributable to: Equity holders of the parent 149.7 7.8 Minority interests (0.3) 2.5 149.4 10.3
Earnings per share from continuing p /
p /operations share share - Basic 8 1.8 0.6 - Diluted 8 1.8 0.6
* Restated as described further in note 7.
Dividends recognised in the period amounted to ‚£51.9 million (six months ended30 June 2006: ‚£36.2 million), or 3.4p per share (six months ended 30 June 2006:3.2p per share). The interim dividend declared but not recognised in theseinterim financial statements is 2.3p per share (six months ended 30 June 2006:2.2p per share) or approximately ‚£33.7 million (six months ended 30 June 2006:‚£24.9 million), taking into account the expected impact of the share buybackprogramme.
The notes on pages 18 to 27 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 2007
Six months Six months ended ended 30 June 30 June 2007 2006 ‚£'m ‚£'m
Exchange differences on translation of foreign operations (14.6)
2.4
Actuarial gains / (losses) on defined benefit plans 7.1
(4.0)
Tax on items taken directly to equity (1.9)
1.1
Net expense recognised directly in equity (9.4)
(0.5) Profit for the period 149.4 10.3
Total recognised income and expense for the period 140.0
9.8 Attributable to: Equity holders of the parent 140.3 7.3 Minority interest (0.3) 2.5 140.0 9.8
The notes on pages 18 to 27 form an integral part of this condensed interim financial information.
Condensed consolidated balance sheet (unaudited)30 June 2007 30 June 31 December 30 June 2007 2006 2006 Note ‚£'m ‚£'m ‚£'m Non-current assets Goodwill 1,494.8 1,552.1 821.3 Other intangible assets 359.5 415.1 162.4
Property, plant and equipment 9 131.4 136.6
107.9 Investments in associates 4.0 6.0 0.5 Financial assets 24.6 10.1 9.4 Retirement benefit assets 4.1 18.7 13.8 Deferred tax assets 50.6 50.6 37.1 Total non-current assets 2,069.0 2,189.2 1,152.4 Current assets Inventories 3.5 2.9 3.8 Trade and other receivables 997.1 1,070.2 920.2 Current tax assets 20.4 31.2 11.2 Cash and cash equivalents 228.8 177.3 125.9 Total current assets 1,249.8 1,281.6 1,061.1 Current liabilities Convertible debt (203.2) (202.4) (210.3) Other borrowings (26.2) (33.1) (22.9) Trade and other payables (868.4) (886.4) (658.8) Current tax liabilities (37.0) (32.3) (22.0) Provisions 10 (18.1) (20.8) (18.0) Total current liabilities (1,152.9) (1,175.0) (932.0) Net current assets 96.9 106.6 129.1
Total assets less current liabilities 2,165.9 2,295.8
1,281.5 Non-current liabilities Borrowings (398.5) (498.9) (317.4)
Retirement benefit obligations (40.2) (64.1)
(79.8) Deferred tax liabilities (136.0) (164.4) (48.1) Provisions 10 (20.3) (13.2) (12.1)
Other non-current liabilities (0.6) (0.8)
(0.9)
Total non-current liabilities (595.6) (741.4)
(458.3) Net assets 1,570.3 1,554.4 823.2 Equity Share capital 11 154.0 153.6 114.8 Share premium account 12 1,097.9 1,097.0 1,087.0 Other reserves 289.9 274.4 (402.4)
Total shareholders' equity 1,541.8 1,525.0
799.4 Minority interests 28.5 29.4 23.8 Total equity 1,570.3 1,554.4 823.2
The notes on pages 18 to 27 form an integral part of this condensed interim financial information.
Condensed consolidated cash flow statement (unaudited) For the six months ended 30 June 2007
Restated * Six Six months months ended ended 30 June 30 June 2007 2006 Note ‚£'m ‚£'m
Cash flows from continuing operating activities Net cash inflow / (outflow) from trading operations
39.8 (0.8)
Cash outflow related to restructuring and integration (16.1) (13.4) activities Cash generated from / (used in) continuing operations 13 23.7 (14.2) Finance costs paid (20.4) (7.5) Income tax paid (23.4) (9.2) Net cash outflow from continuing operating activities (20.1) (30.9) Net cash inflow from discontinued operating activities
8.6 6.4
Cash flows from continuing investing activities
Finance income received 2.1 2.6 Dividends received from associates
0.9 -
Proceeds on disposal of property, plant and equipment
0.5 2.7
Purchases of property, plant and equipment
(19.4) (7.9)
Expenditure on intangible assets
(4.4) (8.8)
Acquisition of subsidiaries, net of cash acquired
(13.6) (227.3)
Disposal of subsidiaries and other businesses, net of cash 28.9 - disposed Disposal of discontinued operation, net of cash disposed
222.0 -
Net cash inflow / (outflow) from continuing investing 217.0 (238.7) activities
Net cash outflow from discontinued investing activities
- (2.0)
Cash flows from continuing financing activities Proceeds from issue of new shares 1.1 0.9 Purchase of own shares (2.7) - Proceeds from bank borrowings - 238.5 Repayments of bank borrowings (93.7) (59.1) Repayments of finance lease principal
(2.0) (1.4)
Repayments of other borrowings
(0.1) -
Dividends paid to the company's shareholders
(51.9) (36.2)
Dividends paid to minority interests
(0.4) (0.8)
Net cash (outflow) / inflow from continuing financing (149.7) 141.9 activities Net increase / (decrease) in cash, cash equivalents and bank 55.8 (123.3) overdrafts Cash, cash equivalents and bank overdrafts at the beginning 14 150.9 245.3 of the period Net increase / (decrease) in cash, cash equivalents and bank 14 55.8 (123.3) overdrafts Effect of foreign exchange rates 14
0.7 (1.1)
Cash, cash equivalents and bank overdrafts at the end of the 14 207.4 120.9 period
* Restated as described further in note 13.
The notes on pages 18 to 27 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 interim financial information for the six months ended 30 June2007 has been prepared in accordance with IAS 34, 'Interim financial reporting'as adopted by the European Union and should be read in conjunction with theannual financial statements for the year ended 31 December 2006. Theaccounting policies adopted in these condensed interim financial statements areconsistent with those of the annual financial statements for the year ended 31December 2006 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 2007 but had no material impact on the consolidated financial statements:
IFRIC 7, 'Applying the restatement approach under IAS 29', effective for annual periods beginning on or after 1 March 2006.
IFRIC 8, 'Scope of IFRS 2', effective for annual periods beginning on or after 1 May 2006.
IFRIC 9, 'Reassessment of embedded derivatives', effective for annual periods beginning on or after 1 June 2006.
IFRIC 10, 'Interims and impairment', effective for annual periods beginning on or after 1 November 2006.
IFRS 7, 'Financial instruments: Disclosures', effective for annual periodsbeginning on or after 1 January 2007. IAS 1, 'Amendments to capitaldisclosures', effective for annual periods beginning on or after 1 January2007. As this interim report contains only condensed financial statements, fullIFRS 7 disclosures are not required at this stage. The full IFRS 7 disclosures,including the sensitivity analysis to market risk and capital disclosuresrequired by the amendment of IAS 1, will be given in the annual financialstatements.
IFRS 4, 'Insurance contracts', revised implementation guidance, effective when an entity adopts IFRS 7. This interpretation is not relevant for the group.
The following new standards, amendments to standards and interpretations have been issued but are not effective for 2007 and have not been early adopted:
IFRIC 11, 'IFRS 2 - Group and treasury share transactions', effective forannual periods beginning on or after 1 March 2007. The directors do not expectthis interpretation to have a significant impact on the consolidated financialstatements.
IFRIC 12, 'Service concession arrangements', effective for annual periods beginning on or after 1 January 2008. The directors do not expect this interpretation to be relevant for the group.
IFRS 8, 'Operating segments', effective for annual periods beginning on or after 1 January 2009, subject to EU endorsement. 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 of total segment revenues, profit, assets, liabilities and other amounts to the corresponding amounts in the consolidated financial statements would be provided, together with an explanation of any differences in measurement basis.
All the IFRSs, IFRIC interpretations and amendments to existing standards had been adopted by the EU, except for IFRS 8, at the date of approval of these condensed consolidated interim financial statements.
This interim report does not constitute statutory accounts of the group within the meaning of section 240 of the Companies Act 1985. Statutory accounts for
the year ended 31 December 2006, which were prepared under International Financial Reporting Standards, 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 Companies Act 1985.
The most important foreign currencies for the group are the euro and the Swedish krona. The relevant exchange rates to pounds sterling were:
30 June 2007 30 June 2006 Average Closing Average Closing ‚£1 = ¢â€š¬ 1.48 1.49 1.46 1.45 ‚£1 = SEK 13.67 13.76 13.56 13.32
Selected notes to the condensed consolidated interim financial information (continued)
Segment information - primary basis
Following the disposal of the Telecoms Products business, LogicaCMG isorganised into six geographical business segments. These business segments arethe group's primary reporting format for segment information as they representthe dominant source and the nature of the group's risks and returns. Segmentrevenue and profit after tax under the primary reporting format are disclosedin the table below. Revenue Profit after tax Restated Restated Six six Six six months months months months ended ended ended ended 30 June 30 June 30 June 30 June 2007 2006 2007 2006 ‚£'m ‚£'m ‚£'m ‚£'m United Kingdom 334.2 364.6 4.4 32.0 Nordics 424.0 2.1 4.2 (0.5) France 289.4 284.3 10.9 2.1 Netherlands 237.2 222.1 20.1 18.1 Germany 81.1 81.1 1.6 (19.0) International 159.4 165.9 2.7 6.1 Revenue and operating profit 1,525.3 1,120.1 43.9 38.8 Finance costs (19.8) (16.3) Finance income 4.3 4.4
Share of post-tax profits / (losses) 0.8
(0.1) from associates Taxation (1.8) (17.9)
Profit after tax from continued 27.4
8.9 operations Discontinued operation 122.0 1.4 Profit after tax 149.4 10.3
Additional voluntary disclosures of the geographical segments before amortisation of intangible assets initially recognised on acquisition and exceptional costs, not required under IFRS, are provided below.
Restated Six Months Six Months ended ended 30 June 2007 30 June 2006 ‚£'m ‚£'m United Kingdom 4.4 33.3 Nordics 36.8 (0.5) France 22.1 21.5 Netherlands 20.1 18.1 Germany 2.9 (5.4) International 3.4 6.9 Adjusted operating profit 89.7 73.9 Following the acquisition of WM-data in 2006, the table above includes a newNordics category representing the group's business in the Nordic countries. Inthe six months ended 30 June 2006 the Nordic countries were presented withinthe Rest of Europe category. This has resulted in revenue of ‚£2.1 million andan operating loss of ‚£0.5 million being reclassified to the new Nordicscategory from the Rest of Europe category. In addition, the comparative information in the table above has been amended sothat the new International category includes the previously reported Rest ofEurope and Rest of World, with the exception described above.
Selected notes to the condensed consolidated interim financial information (continued)
Exceptional items
During the six months ended 30 June 2007, the group incurred a charge of ‚£7.6 million mainly relating to the restructuring of the business in the Nordics following the acquisition of WM-data AB. The restructuring comprises costs associated with off-shoring activities and IT infrastructure integration.
During the six months ended 30 June 2006, the group incurred a charge of ‚£23.6million mainly relating to the restructuring of the businesses in France andGermany following the acquisition of Unilog S.A. ('Unilog') and the closure ofa building in the United States of America following the change of headquartersafter the Worksuite acquisition. The restructuring comprised a reduction inheadcount, property restructuring provisions and other measures to reduce thecost base.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. Restated Six months Six months ended ended 30 June 30 June 2007 2006 ‚£'m ‚£'m Operating profit 43.9 38.8 Exceptional costs 7.6 23.6
Amortisation of intangible assets initially recognised on 38.2
11.5 acquisition Adjusted operating profit 89.7 73.9 Employees Six months Six months ended ended 30 June 2007 30 June 2006
The average number of employees during the period was: Number
Number United Kingdom 6,061 6,089 Nordics 10,193 59 France 8,672 8,233 Netherlands 5,973 5,731 Germany 2,085 2,206 International 6,242 5,612 Continuing operations 39,226 27,930 Discontinued operation 1,450 1,674 40,676 29,604 Six months Six months ended ended 30 June 2007 30 June 2006
The number of employees at the end of the period was: Number
Number United Kingdom 5,956 6,082 Nordics 9,379 58 France 8,775 8,159 Netherlands 6,015 5,712 Germany 2,091 2,183 International 6,280 5,632 Continuing operations 38,496 27,826 Discontinued operation - 1,679 38,496 29,505
Selected notes to the condensed consolidated interim financial information (continued)
5. Employees (continued)
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 the six months ended 30 June 2006, the group's business in the Nordiccountries was presented within the Rest of Europe category. This has resultedin 58 employees at 30 June 2006 and an average of 59 employees during the sixmonths ended 30 June 2006 being reclassified to the new Nordics category fromthe 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 Rest ofEurope and Rest of World categories, with the exception described above. Taxation The tax charge on continuing operations after amortisation of intangible assetsinitially recognised on acquisition, for the six months ended 30 June 2007,before share of post-tax profits from associates and exceptional items was ‚£3.9million (10.8% effective tax rate) (restated six months ended 30 June 2006: ‚£19.1 million (37.9% 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 2007, before share of post-tax profits from associates, exceptional itemsand amortisation of intangible assets initially recognised on acquisition was18.0% (restated six months ended 30 June 2006: 31.2%). The decrease is mainlydue to the use of unrecognised losses brought forward. The total tax charge for the six months ended 30 June 2007 is ‚£1.8 million(restated six months ended 30 June 2006: ‚£17.9 million) of which a tax creditof ‚£11.6 million (six months ended 30 June 2006: ‚£1.5 million) relates toexceptional items and amortisation of intangible assets initially recognised onacquisition.
The tax charge includes an overseas charge of ‚£3.3 million (six months ended 30 June 2006: ‚£6.9 million).
The reduction in the statutory corporate rate in Germany from around 40% to 30%has been substantially enacted post 30 June 2007 and has therefore not beenreflected in the tax charge for the six months ended 30 June 2007. The effectof this change on the results for the year ended 31 December 2007 is expectedto be an additional tax credit of ‚£1.7 million. Discontinued operation
The group completed its disposal of the Telecoms Products business to an investment consortium led by Atlantic Bridge Ventures on 18 June 2007 for ‚£ 265.0 million. The transaction reflects the group's strategic focus on developing as a major international IT and business services company.
Analysis of profit from discontinued operation
Six months Six months ended ended 30 June 2007 30 June 2006 ‚£'m ‚£'m Revenue 86.6 123.0 Net operating costs (109.2) (119.8) Operating (loss) / profit (22.6) 3.2 Finance costs (net) - (0.5) Taxation 2.3 (1.3)
Loss for the period from Telecoms Products (20.3)
1.4
Gain recognised on disposal of Telecoms Products business 152.8
- Taxation (10.5) -
Profit from discontinued operation 122.0
1.4
The income statement for the period ended 30 June 2006, was restated to show the Telecoms Products business as a discontinued operation to allow a more meaningful comparison with the current period, as required by IFRS 5.
Selected notes to the condensed consolidated interim financial information (continued)
7. Discontinued operation (continued) The net assets of the Telecoms Products business on the date of disposal wereas follows: ‚£'m Goodwill 32.0 Other intangible assets 4.1
Property, plant and equipment
5.8
Trade and other receivables
101.4 Cash and cash equivalents 38.0 Current tax 0.5 Trade and other payables (91.2) Deferred tax (3.5) Provisions (1.4) Net assets disposed of 85.7 Total consideration 265.0
Foreign exchange differences recycled from equity
4.1 Disposal costs (30.6) Profit on disposal 152.8 Cash consideration received 264.8
Cash and cash equivalents disposed of
(38.0)
Net cash inflow arising on disposal
226.8 The total consideration of ‚£265.0 million comprised of cash of ‚£264.8 millionand other assets of ‚£0.2 million. At 30 June 2007, ‚£4.8 million of thedisposal costs had been paid. Included in trade and other payables is a loanof ‚£14.3 million provided by the group to the vendor and which is repayable on18 June 2009.
8. Earnings per share
Six months ended 30 June 2007 Weighted average Earnings Earnings number per 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
Selected notes to the condensed consolidated interim financial information (continued)
8. Earnings per share (continued) 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
8.0 shareholders 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 Restated six months ended 30 June 2006 Weighted average Earnings Earnings number per of share shares Earnings per share from continuing operations ‚£'m
Million Pence
Profit for the period from continuing operations 8.9
Minority interest (2.5) Earnings attributable to ordinary shareholders 6.4 1,131.3 0.6 Basic EPS 6.4 1,131.3 0.6 Effect of share options and share awards - 10.3 - Diluted EPS 6.4 1,141.6 0.6
Adjusted earnings per share from continuing operations Earnings attributed to ordinary shareholders 6.4 1,131.3 0.6 Add back: Exceptional items, net of tax 22.4 - 2.0
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 11.3 - 1.0 Basic adjusted EPS 40.7 1,131.3 3.6 Effect of share options and share awards -
10.3 -
Effect of convertible bonds, excluding mark-to-market
loss, net of tax 2.1 64.6 (0.1) Diluted adjusted EPS 42.8 1,206.2 3.5
Selected notes to the condensed consolidated interim financial information (continued)
8. Earnings per share (continued) Restated six months ended 30 June 2006 Weighted average Earnings per number Earnings Share of shares
Earnings per share from discontinued ‚£'m Million
Penceoperations
Earnings attributable to ordinary 1.4 1,131.3
0.1 shareholders Basic EPS 1.4 1,131.3 0.1
Effect of share options and share awards - 10.3
- Diluted EPS 1.4 1,141.6 0.1
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 2007 and2006 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 2007 and 2006. The impact of the charge for share-based payments was to reduce adjusted basicearnings per share from continuing operations for the six months ended 30 June2007 by 0.3 pence per share (six months ended 30 June 2006: 0.4 pence pershare).
The number of shares changed as described further in note 18.
Capital expenditure Additions to property, plant and equipment during the six months ended 30 June2007 amounted to ‚£24.4 million (six months ended 30 June 2006: ‚£10.9million). The net book value of property, plant and equipment disposed (including thedisposals of Telecoms Products and Caran) during the six months ended 30 June2007 amounted to ‚£8.7 million (six months ended 30 June 2006: ‚£2.7 million). Provisions Total ‚£'m At 1 January 2007 34.0 Charge for the period 23.4 Utilised in the period (17.4)
Disposal of discontinued operation
(1.4) Exchange difference (0.2) At 30 June 2007 38.4 Analysed as: Current liabilities 18.1 Non-current liabilities 20.3 38.4
Selected notes to the condensed consolidated interim financial information (continued)
Share capital of LogicaCMG plc
30 30 June June 2007 2006 Authorised ‚£'m ‚£'m 2,250,000,000 (30 June 2006: 1,750,000,000) ordinary shares of 10p 225.0 175.0each 2007 2006 Allotted, called-up and fully paid Number ‚£'m Number ‚£'m At 1 January 1,535,698,482 153.6 1,146,238,652 114.6 Allotted under share option schemes 4,037,763 0.4 1,811,449 0.2 At 30 June 1,539,736,245 154.0 1,148,050,101 114.8 The company has entered into an irrevocable commitment for ‚£80.0 million withits corporate brokers to purchase shares, which in part covers the close periodfrom 30 June to 29 August 2007. This has resulted in ‚£72.4 million beingrecorded as a current liability. During the period 25 June to 29 June 2007, the company purchased andsubsequently in July 2007 cancelled 5.4 million ordinary shares at an averageprice of ‚£1.51, with a nominal value of ‚£0.5 million, for consideration of ‚£8.2million. Consideration included stamp duty and commission of ‚£0.1 million. Share premium 2007 2006 ‚£'m ‚£'m At 1 January 1,097.0 1,084.8
Premium on shares allotted under share option schemes 0.9
2.2 At 30 June 1,097.9 1,087.0 Reconciliation of operating profit to cash generated from continuing operations Restated Six months six months ended ended 30 June 30 June 2007 2006 ‚£'m ‚£'m Operating profit: Continuing operations 43.9 38.8 Adjustments for:
Derivative financial instruments 1.1
0.3 Share-based payments 5.3 5.0
Depreciation of property, plant and equipment 19.1
13.5
Amortisation of intangible assets 42.3
15.0
Loss on disposal of property, plant and equipment 0.6
-
Profit on sale of subsidiaries (0.2)
- Net movements in provisions (4.3) 11.8
Non-cash element of expense for defined benefit plans (2.0)
(0.4) 61.9 45.2 Movements in working capital: Inventories (0.5) (1.5) Trade and other receivables (40.8) (76.2) Trade and other payables (40.8) (20.5) (82.1) (98.2)
Cash generated from / (used in) continuing operations 23.7
(14.2)
Add back: Cash outflow related to restructuring and 16.1
13.4 integration activities
Net cash inflow / (outflow) from trading operations 39.8
(0.8)
Selected notes to the condensed consolidated interim financial information (continued)
13. Reconciliation of operating profit to cash generated from continuing operations (continued)
The cash flow statement for the period ended 30 June 2006, was restated to show the Telecoms Products business as a discontinued operation to allow a more meaningful comparison with the current period.
Reconciliation of movements in net debt
At Acquisitions Other At 1 and non-cash Exchange 30 June January Cash disposals movements differences 2007 2007 flows ‚£'m ‚£'m ‚£'m ‚£'m ‚£'m ‚£'m Cash and cash 177.3 51.0 - - 0.5 228.8 equivalents Bank overdrafts (26.4) 4.8 - - 0.2 (21.4) 150.9 55.8 - - 0.7 207.4 Finance leases (6.5) 2.0 0.1 (1.3) (0.1) (5.8) Bank loans (498.0) 93.7 - (0.8) 8.6 (396.5) Other loans (1.1) 0.1 - - - (1.0) Convertible bonds (202.4) - - (2.2) 1.4 (203.2) Net debt (557.1) 151.6 0.1 (4.3) 10.6 (399.1)
*Excludes cash and cash equivalents disposed of ‚£39.0 million and bank overdrafts disposed of ‚£1.3 million.
Disposals The group completed the disposal of its industrial design and productdevelopment business Caran to Swedish conglomerate JCE Group on 4 June 2007 for‚£24.1 million. The disposal process for Caran included a rationalisation ofits previous business ventures with Saab. These latter transactions, whichcompleted on 1 April 2007, included: the sale of a 50% interest in Caran SaabEngineering AB; the purchase of a 40% interest in A2 Acoustics AB and theacquisition of Saab's Combitech operations. The entire share capital of A2Acoustics AB and the Combitech operations were subsequently disposed of on
4June 2007. The net assets of the Caran business that was sold to JCE Group on 4 June 2007were as follows: ‚£'m Goodwill 16.3 Other intangible assets 8.4 Property, plant and equipment 1.3 Trade and other receivables 18.6 Cash and cash equivalents 1.0 Borrowings (1.3) Trade and other payables (15.1) Current tax (0.5) Deferred tax (2.5) Net assets disposed of 26.2 Total consideration 24.1
Foreign exchange differences recycled from equity
0.2 Disposal costs (0.9) Loss on disposal (2.8) Cash received 24.1
Cash and cash equivalents disposed of
(1.0)
Net cash inflow arising on disposal
23.1
The sale of the group's 50% associate interest in Caran Saab Engineering AB on1 April 2007 generated a profit of ‚£3.0 million from cash considerationreceived of ‚£4.4 million. Together with the ‚£2.8 million loss on disposal ofthe Caran business sold to JCE Group on 4 June 2007, the group's combinedprofit from the disposal of all Caran-related business activities was ‚£0.2million.
These disposals do not match the criteria of IFRS 5 'Non-current assets held for sale and discontinued operations' and hence are not treated as a discontinued operation.
Selected notes to the condensed consolidated interim financial information (continued)
Acquisitions
On 31 March 2007, the group acquired the outsourcing, IT infrastructure and systems integration business of Siemens Business Systems AS in Norway. The acquisition comprised the purchase of the business assets and liabilities, together with the transfer of approximately 180 employees.
The provisional fair values of the identifiable assets and liabilities acquiredwere as follows: Carrying amount Provisional pre-acquisition fair value ‚£'m ‚£'m
Property, plant and equipment 3.6 3.6
Inventories 0.1 0.1
Trade and other receivables 7.4 7.4
Trade and other payables (2.2) (2.2)
Share of net assets acquired 8.9 8.9
Goodwill 2.7 Total consideration 11.6
Total consideration comprised:
Cash paid 5.0 Deferred consideration 6.6 11.6 The fair values above contain some provisional amounts which will be finalisedbefore the end of the current financial year. The goodwill recognised of ‚£2.7million is attributable to anticipated synergies and the value of theworkforce. On 1 April 2007, the group acquired Saab's Combitech operations as part of therationalisation of business ventures with Saab referred to in note 15. Thegroup paid cash of ‚£1.5 million and assumed liabilities of ‚£0.2 million,resulting in goodwill of ‚£1.7 million which was subsequently disposed of on 4June 2007 through the sale of the Caran business to JCE Group. It is impracticable for the group to disclose separately the revenues and netprofit of the acquired business in Norway as its operations and financialreporting have been integrated with the group's pre-existing Norwegianbusiness. If the acquisitions had occurred at the beginning of the financialperiod, the group's pro forma revenue and net profit for the six months ended30 June 2007 would not be materially different from that reported in theconsolidated income statement.
Contingent liabilities
The group has contingent liabilities arising during the ordinary course of business from which it is anticipated that no material loss will arise.
Events after the balance sheet
During the close period from 30 June to 29 August 2007, the company purchased36.3 million ordinary shares at an average price of ‚£1.54, with a nominal valueof ‚£3.6 million, for a consideration of ‚£55.8 million.Interim report
The interim report was approved by the board of directors on 28 August 2007 andcopies are available from LogicaCMG plc, Stephenson House, 75 Hampstead Road,London NW1 2PL and LogicaCMG, Antareslaan11, 2132 JE Hoofddorp, 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¬1.48 to ‚£1 (six months ended30 June 2006: ¢â€š¬1.46 to ‚£1). The balance sheet has been calculated byconverting the sterling figures to euros at the closing rate of ¢â€š¬1.49 to ‚£1 (31December 2006: ¢â€š¬1.48 to ‚£1, 30 June 2006: ¢â€š¬1.45 to ‚£1).
Euro translation of condensed consolidated income statement For the six months ended 30 June 2007
Restated Six months six months ended ended 30 June 30 June 2007 2006 ¢â€š¬'m ¢â€š¬'m Continuing operations: Revenue 2,257.5 1,635.3 Net operating costs (2,192.5) (1,578.7) Operating profit 65.0 56.6 Analysed as:
Operating profit before exceptional items 76.2
91.1 Exceptional items (11.2) (34.5) Operating profit 65.0 56.6 Finance costs (29.4) (23.8) Finance income 6.4 6.4
Share of post-tax profits / (losses) from associates 1.2
(0.1) Profit before tax 43.2 39.1 Taxation (2.7) (26.1)
Profit for the period from continuing operations 40.5
13.0 Discontinued operation:
Profit from discontinued operation 180.6
2.0 Net profit for the period 221.1 15.0 Attributable to: Equity holders of the parent 221.5 11.4 Minority interests (0.4) 3.6 221.1 15.0 Earnings per share from continuing operations cents / share cents / share - Basic 2.7 1.0 - Diluted 2.7 1.0
Euro translation of condensed consolidated balance sheet 30 June 2007
See page 28 for basis of translation.
30 June 31 December 30 June 2007 2006 2006 ¢â€š¬'m ¢â€š¬'m ¢â€š¬'m Non-current assets Goodwill 2,227.2 2,297.1 1,190.9 Other intangible assets 535.7 614.3 235.5 Property, plant and equipment 195.8 202.2 156.5 Investments in associates 6.0 8.9 0.7 Financial assets 36.6 14.9 13.6 Retirement benefit assets 6.1 27.7 20.0 Deferred tax assets 75.4 74.9 53.8 Total non-current assets 3,082.8 3,240.0 1,671.0 Current assets Inventories 5.2 4.3 5.5 Trade and other receivables 1,485.7 1,583.9 1,334.3 Current tax assets 30.4 46.2 16.2 Cash and cash equivalents 340.9 262.4 182.6 Total current assets 1,862.2 1,896.8 1,538.6 Current liabilities Convertible debt (302.8) (299.5) (304.9) Other borrowings (39.0) (49.0) (33.2) Trade and other payables (1,293.9) (1,311.9) (955.3) Current tax liabilities (55.1) (47.8) (31.9) Provisions (27.0) (30.8) (26.1) Total current liabilities (1,717.8) (1,739.0) (1,351.4) Net current assets 144.4 157.8 187.2
Total assets less current liabilities 3,227.2 3,397.8
1,858.2 Non-current liabilities Borrowings (593.8) (738.4) (460.2)
Retirement benefit obligations (59.9) (94.9)
(115.7) Deferred tax liabilities (202.7) (243.3) (69.8) Provisions (30.2) (19.5) (17.6)
Other non-current liabilities (0.9) (1.2)
(1.3)
Total non-current liabilities (887.5) (1,097.3)
(664.6) Net assets 2,339.7 2,300.5 1,193.6 Equity Share capital 229.5 227.3 166.5 Share premium account 1,635.9 1,623.6 1,576.1 Other reserves 431.9 406.1 (583.5) Total shareholders' equity 2,297.3 2,257.0 1,159.1 Minority interests 42.4 43.5 34.5 Total equity 2,339.7 2,300.5 1,193.6
Euro translation of condensed consolidated cash flow statement For the six months ended 30 June 2007
See page 28 for basis of translation.
Restated Six six months months ended ended 30 June 30 June 2007 2006 ¢â€š¬'m ¢â€š¬'m
Cash flows from continuing operating activities Net cash inflow / (outflow) from trading operations 58.9
(1.2)
Cash outflow related to restructuring and integration (23.8) (19.6) activities
Cash generated from / (used in) continuing operations 35.1
(20.8) Finance costs paid (30.2) (11.0) Income tax paid (34.6) (13.3) Net cash outflow from continuing operating activities (29.7) (45.1)
Net cash inflow from discontinued operating activities 12.7
9.3
Cash flows from continuing investing activities
Finance income received 3.1 3.8
Dividends received from associated 1.3
-
Proceeds on disposal of property, plant and equipment 0.7
3.9
Purchases of property, plant and equipment
(28.7) (11.5)
Expenditure on intangible assets
(6.5) (12.8)
Acquisition of subsidiaries, net of cash acquired
(20.1) (331.9)
Disposal of subsidiaries and other businesses, net of cash 42.8
- disposed
Disposal of discontinued operation, net of cash disposed 328.6
-
Net cash inflow / (outflow) from continuing investing 321.2
(348.5) activities
Net cash outflow from discontinued investing activities -
(2.9)
Cash flows from continuing financing activities Proceeds from issue of new shares 1.6
1.3 Purchase of own shares (4.0) - Proceeds from bank borrowings - 348.2 Repayments of bank borrowings (138.7) (86.3) Repayments of finance lease principal
(3.0) (2.0)
Repayments of other borrowings
(0.1) -
Dividends paid to the company's shareholders
(76.8) (52.8)
Dividends paid to minority interests
(0.6) (1.2)
Net cash (outflow) / inflow from continuing financing (221.6) 207.2 activities
Net increase / (decrease) in cash, cash equivalents and bank 82.6
(180.0) overdrafts
Cash, cash equivalents and bank overdrafts at the beginning of 223.3
358.1 the period
Net increase / (decrease) in cash, cash equivalents and bank 82.6
(180.0) overdrafts
Effect of foreign exchange rates 3.1
(2.8)
Cash, cash equivalents and bank overdrafts at the end of the 309.0
175.3 period
Independent review report to LogicaCMG plc
Introduction
We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises the condensed consolidatedinterim balance sheet as at 30 June 2007 and the related condensed consolidatedinterim statements of income, cash flows and statement of recognised income andexpenses for the six months then ended and related notes. We have read theother information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. Directors' responsibilities
The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The ListingRules of the London Stock Exchange require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes,and the reasons for them, are disclosed.
This interim report has been prepared in accordance with the International Accounting Standard 34, 'Interim financial reporting'.
Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management andapplying analytical procedures to the financial information and underlyingfinancial data and, based thereon, assessing whether the disclosed accountingpolicies have been applied. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit and therefore provides a lower levelof assurance. Accordingly we do not express an audit opinion on the financialinformation. This report, including the conclusion, has been prepared for andonly for the company for the purpose of the Listing Rules of the FinancialServices Authority and for no other purpose. We do not, in producing thisreport, accept or assume responsibility for any other purpose or to any otherperson to whom this report is shown or into whose hands it may come save whereexpressly agreed by our prior consent in writing. Review conclusion
On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2007.
PricewaterhouseCoopers LLPChartered AccountantsLondon 28 August 2007 Notes: (a) The maintenance and integrity of the LogicaCMG Plc web site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.
LOGICACMG PLCRelated Shares:
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