24th Feb 2010 07:00
24 February 2010
Logica delivers solid results in line with guidance
Headlines1
Performance in line with guidance
Full year revenue down 3% on a pro forma basis, up 3% on an actual basis; strong revenue growth in UK offset by Benelux decline
Outsourcing revenue up 9% offset by decline of 10% in consulting and professional services
Adjusted operating margin broadly maintained at 7.4%
Strong operating cash conversion at 130%; net debt/EBITDA at 0.9x, with net debt of £291 million
Proposed full year dividend of 3.3p, representing a 10% increase
Good orders growth and healthy pipeline as we exit 2009
Group orders up 4%, with Outsourcing orders up 21%
Book to bill of 114% reflects stronger second half momentum in France and the Nordics
Continued focus on sustainable growth and margin improvement over the longer term
Programme for Growth cost savings of £75 million delivered in 2009, with reinvestments of £30 million in future growth
Exceptional restructuring costs up £11 million to £95 million in 2009
Increased savings of £130 million in 2010, with annualised savings of £145 million from 2011
No further restructuring costs expected in 2010
For the year ended 31 December 2009, unaudited results were as follows:
Continuing Operations 2009 2008 Pro 2008 Growth Forma Actual Pro Forma Actual Revenue (£'m) 3,702 3,834 3,588 (3%) 3% Adjusted operating profit (£ 272 289 267 (6%) 2% 'm) Adjusted operating margin 7.4% 7.5% 7.5% Adjusted basic EPS (p) 12.5 12.3 2% Dividend per share (p) 3.3 3.0 10% Statutory results: 2009 2008 Actual Operating profit (£'m) 66 86 Profit before tax (£'m) 43 44 Basic EPS (p) 2.5 2.7
For definition of pro forma, adjusted operating profit, adjusted operating margin, adjusted basic EPS and cash conversion, see notes on page 16.
Commenting on today's announcement, Andy Green, CEO, said:
"In 2009, we grew orders, protected margin and converted profits to cash by executing on our plan in a tough market.
"As we enter 2010, Logica is a more integrated, confident company with a clearfocus on delivering value. Building on our strengths in our key markets, ourdeep long lasting client relationships and our European roots, we arepositioned to deliver sustainable results for our clients, people andshareholders."
For further information, please contact:
Logica Investor relations: Karen Keyes/Frances Gibbons +44 (0) 20 7446 1338/+44 (0) 7801 723682
Logica Media relations: Louise Fisk +44 (0) 7798 857770
Brunswick: Tom Buchanan +44 (0) 20 7404 5959
1 Unless otherwise stated, all headline numbers relate to pro forma numbers as defined on page 16.
Financial overview - continuing operations
On a reported basis, Group revenue was up 3% to £3,702 million (2008 actual: £3,588 million) representing a pro forma decline of 3%, in line with ourguidance. Orders for the year were 4% ahead of 2008 on a pro forma basis,resulting in a book to bill of 114% (2008: 106%). Adjusted operating profitwas £272 million (2008 actual: £267 million), representing an adjustedoperating margin of 7.4% (2008 actual: 7.5%). The decrease in operatingprofit to £66 million (2008 actual: £86 million) was the result of higherexceptional items associated with our Programme for Growth of £95 million(2008: £84 million) and an increase in other exceptional costs to £22 million(2008: £8 million), of which the main element was a charge of £19 million inrelation to the planned disposal of a business in the Benelux region. Basicadjusted EPS was 12.5p (2008 actual: 12.3p). Basic EPS was 2.5p (2008 actual:2.7p). Net cash inflow from trading operations was £354 million, leading tocash conversion of 130%. Closing net debt was £291 million (£438 million at 31December 2008), with net debt/EBITDA at the end of 2009 of 0.9x. The proposedfinal dividend is 2.3p (2008: 0.6p), which will result in a 10% increase in thefull year dividend compared to 2008. Market overview
While clients' discretionary spend continues to be constrained, we have seen some stabilisation in the volume of opportunities and pricing levels in consulting and professional services in the second half of 2009.
We continue to see an increase of outsourcing opportunities in our commercialsectors. In the Public Sector, we continue to see a good pipeline ofopportunities across Europe, despite the fact that we expect UK public sectordecision-making to slow as we come through 2010. Despite the pressures onEuropean governments to reduce spending, there continue to be opportunities todeliver cost reductions through outsourcing over the medium term. Theoutsourcing market remains competitive, with margins mainly driven by executionexcellence.
Overall, our pipeline remains healthy as we bid more opportunities due to our continued investments in sales and marketing.
Outlook
Our backlog will drive continued growth in Outsourcing throughout the year and we expect a gradual stabilisation in consulting and professional services.
We expect Group revenue to decline modestly in the first half, with full yearrevenue expected to be at a similar level to 2009, on a constant currencybasis. The effect of our continued cost reduction programme should offset thefull year impact of volume and pricing reductions agreed during 2009,maintaining margins in a stable revenue environment in 2010.
The solid base we have put in place through our Programme for Growth should allow us to outperform the market and improve margins over the medium term.
Programme for GrowthThe Programme for Growth has been the core of our strategy since we launched itin April 2008 and it has helped us to manage our way through the uncertaineconomic environment we experienced in 2008 and 2009. The cost actions weundertook enabled us to deliver a margin broadly in line with 2008 despite thedifficult market conditions.
We have made good progress on all aspects of the Programme for Growth, with performance in line with or above expectations in three of the four areas.
Under our competitive costs area, actions are now in place to deliver £130million of annualised cost savings in 2010 (against our 2007 cost base andcompared to an original target of £80 million), with £75 million of those costsavings delivered in 2009. Streamlining the organisation and reducingnon-billable overheads has been the largest contributor, delivering around 60%of cost savings in 2009, with additional headcount reductions and propertyexits continuing through the fourth quarter. This brings total redundanciessince the beginning of 2008 to around 2,500 as a result of the programme. Wehave taken additional action as we have come through the second half to improveour competitiveness in the Benelux. Additional savings will be realised,taking total annualised savings from the Programme for Growth to £145 millionfrom 2011 at a total cost of £179 million. Cash outflows were £66 million in2009 and are expected to be £58 million in 2010. We do not expect any furtherrestructuring costs in 2010. Our overall investments in the Programme in 2009 were £30 million and wecontinued to prioritise the investments in client-facing activities. Ourprogress in the Focus for Growth and One Logica areas has resulted in a moreclient-focused company. Around half of our investments were in the Focus forGrowth area to build stronger account management, Outsourcing sales andconsulting. This resulted in a strong order performance. In addition to a 21%increase in Outsourcing orders, orders in our High Growth Areas have doubled. The size of deals won has also increased. We won 13 orders over £20 millionand an additional six deals greater than £15 million. Our pipeline continuesto be healthy.
Our approach to clients has improved with new incentives for our employees aswell as common tools and processes funded through the One Logica investments.Since the October 2009 launch of a new all-employee recognition programme toencourage company cross-working, 1,400 employees in 24 countries have receivedawards. Our new process and tools for managing the evaluation of bids,pricing, and the assessment of risk has now been adopted globally for all butsmall bids. Industrialisation of blended delivery is now in its first phase,with initial releases of standardised tools aimed at productivity improvementsand group-wide licenses achieving cost savings.
Given the challenging market conditions, we did not achieve our headcount target under the Accelerate Blended Delivery (ABD) programme but we continued to invest in quality and efficiency to give us a strong base entering 2010.
Our headcount in our offshore and nearshore centres was stable on 2008 at 5,100 and up 48% compared to 3,450 when we launched the Programme for Growth.
Efficiency and utilisation improved in 2009, with the bench at the end of 2009down 60% over 2008. More complex work is being done in our offshore andnearshore centres as we have strengthened our capabilities through recruitmentand training. We have opened a new centre in Rabat, Morocco to meet theincreased demand we are seeing from our French clients and we have thefacilities, capability and processes in place to rapidly scale the number ofpeople in our operations to meet client demand as the economy recovers. Employees from our offshore and nearshore centres deployed on to UK contractsexceeded the 25% target set for 2009. In Sweden and Norway, this is now above10% while our other major geographies are above 5%. We expect to see anincrease in blended delivery over the longer term. At the end of 2009, 45% oflarge deals in the pipeline had an element of blended delivery, compared to
30%a year ago.
Updating the Programme for Growth
We are updating the Programme for Growth. Our revised plan starts from a moreintegrated Logica and is centred around our clients. It has four parts: clientengagement, client value, client-focused people and delivering value formoney. It continues to be based on a discipline of cost improvement to fundreinvestment in long term growth and competitiveness. This should deliverrevenue growth above the market and improve margins over the medium term as themarket recovers. We do not expect to incur any restructuring costs beyond 2009in conjunction with the plan, which should also result in an improvement in
ournet operating margin.
Client engagement: Our work on client engagement includes the relaunch of our brand, our collaborative innovation programme, our ongoing investment in stronger account management and the introduction of a Business Consulting service line to complement our existing Outsourcing Services business line.
Client value: This builds on the work we have done in the High Growth Areasunder the Programme for Growth. We will maintain our investments in sectorthought leadership in areas such as utilities around the deployment of smartmeters and Intelligent Transport but are more focused on where we are investingin each sector. The work we have done around Enterprise Content Management,Service Oriented Architecture and Business Intelligence as well as thedevelopment of our ecosystem of partners (including Microsoft, SAP and Oracle)will also continue to be a priority for investment. We will also focus onthree key cross-sector themes that we believe are crucial to our clients overthe longer term: Sustainability, Cloud and Security. Client-focused people: Our plan to become more client-focused covers fourareas: helping our people live the refreshed brand, investing in both peopledevelopment and skills, and ensuring our incentives are structured to enableexcellent performance. Delivering value for money: Reducing the average cost of delivery in acompetitive world will be a function of our costs coming down. We will havethe right balance of people onshore, nearshore and offshore, and will optimiseutilisation levels. We will have global standardised tooling for blendeddelivery and service management which should lead to improved productivity.
A
common procurement process will result in better buying. We will also reduceour overheads, carrying on the Finance and HR transformation we have alreadystarted.
Operating performance - continuing operations
Unless otherwise stated, all comparatives are on a pro forma basis (see note onpage 16). As previously disclosed, the basis on which we are reporting revenueand profit changed at the beginning of 2009 to reflect the management structurein place through the year. The prior year comparatives have been restatedbelow. Revenue by geography Growth Growth FY'09 on H2'09 on FY'09 H2'09 FY'08 FY'08 FY'08 H2'08 Actual Actual Pro forma Actual Pro forma Pro forma % £'m £'m £'m £'m % % of total Nordics 1,032 513 1,058 1,000 (2) (4) 28 France 791 390 804 721 (2) (2) 21 UK 750 371 710 710 6 4 20 Benelux 574 265 700 627 (18) (23) 16 International 555 287 562 530 (1) - 15 Total 3,702 1,826 3,834 3,588 (3) (5) 100 Full year revenue performance was up 3% on a reported basis. On a pro formabasis, this represented a 3% decline, in line with our guidance. Strong growthin the UK was offset by declines in other geographies. As expected, theBenelux remained our most difficult market. In the Nordics, strong growth inFinland was offset by the weakness in Sweden. The second half in France saw asimilar year on year decline to the first half, while the Internationalbusiness was stable on last year in the second half. Both France and theInternational business showed modest growth in the fourth quarter. Revenue by sector Growth Growth FY'09 H2'09 on on FY'08 FY'08 H2'08 FY'09 H2'09 Pro FY'08 Pro Pro % Actual Actual forma Actual forma forma of £'m £'m £'m £'m % % total Public Sector 1,180 572 1,131 1,073 4 (2) 32
Industry, Distribution and 1,005 499 1,100 1,032 (9) (7)
27Transport Energy and Utilities 650 326 632 587 3 - 18 Financial Services 553 270 688 633 (20) (19) 15 Telecoms and Media 314 159 283 263 11 14 8 Total 3,702 1,826 3,834 3,588 (3) (5) 100 At a Group level, growth in Energy and Utilities, Public Sector and Telecomsand Media was offset by the decline in Financial Services and IDT. Telecomsand Media was the best performing sector, with exceptionally strong growth inthe second half in the Nordics and the UK. The Financial Services sectorremained the weakest sector, although there were signs of stabilisation in thesecond half. Public Sector and Energy and Utilities benefited from a strongfirst half, with the second half being broadly stable against a strong 2008
comparative.
Adjusted operating profit by geography
Growth FY'09 H2'09 FY'08 FY'09 on FY'09 H2'09 Actual Actual FY'08 Pro forma FY'08 FY'08 Actual Actual Margin Margin Pro forma Margin Actual Pro forma £'m £'m % % £'m % £'m % Nordics 84 44 8.2 8.7 93 8.8 88 (10) France 60 33 7.5 8.2 61 7.6 55 (2) UK 64 35 8.5 9.5 55 7.8 55 16 Benelux 24 8 4.2 3.1 49 6.9 43 (51) International 40 25 7.3 8.8 31 5.5 26 29 Total 272 145 7.4 8.0 289 7.5 267 (6) Adjusted operating profit (before exceptional items and amortisation ofintangibles initially recognised on acquisition) of £272 million (2008: £289million) was lower than last year, mainly as a result of the revenue declineexperienced in the year. Lower margin in the non-outsourcing business as a result of reduced utilisationwas the main contributor to margin declining in a number of geographies. Thisparticularly impacted the Benelux. Improvements in the UK and Internationalbroadly offset the declines elsewhere, resulting in an adjusted operatingmargin of 7.4% (2008: 7.5%).
Operating profit by geography
FY'09 FY'09 Operating Exceptional Amortisation of Adjusted profit items intangibles operating profit £'m £'m £'m £'m Nordics - 29 55 84 France 19 12 29 60 UK 43 21 - 64 Benelux (23) 47 - 24 International 27 8 5 40 Total 66 117 89 272 FY'08 FY'08 Operating Exceptional Amortisation of Adjusted profit items intangibles operating profit £'m £'m £'m £'m Nordics 14 16 58 88 France 18 11 26 55 UK 11 44 - 55 Benelux 35 8 - 43 International 8 13 5 26 Total 86 92 89 267 Operating profit was £66 million (2008: £86 million) mainly as a result ofhigher exceptional items of £117 million (2008: £92 million). An £11 millionincrease in exceptional restructuring costs was due to the continuingimplementation of our Programme for Growth (2008: £84 million). Exceptionalcosts on disposals of £22 million were also higher (2008: £8 million).Following the decision to exit the lower margin payroll processing business inthe Benelux region, the results of this business and the revaluation of therelated assets to fair value less disposal costs have been classified asexceptional As a result of this, we have incurred a £19 million charge on theplanned disposal.
Amortisation of intangible assets from acquisitions was £89 million (2008: £89 million).
Outsourcing Services
Group revenue by service line
Growth FY'09 on % of total Group FY'08 FY'08 revenue FY'09 Pro FY'08 Pro Actual forma Actual forma £'m £'m £'m % Outsourcing Services 1,380 1,264 1,161 9 37 Consulting and professional 63services 2,322 2,570 2,427 (10) Total Group revenue 3,702 3,834 3,588 (3) 100
Outsourcing Services adjusted operating profit
FY'09 FY'08 FY'08 Actual Pro forma Actual £'m £'m £'m Adjusted operating profit (£m) 96 84 77 Adjusted operating margin (%) 6.9 6.7 6.6
Outsourcing Services revenue by geography
FY'09 FY'08 FY'08 Actual Pro forma Actual FY'09 Outsourcing £'m £'m £'m % of total country revenue Nordics 383 359 344 37 France 307 259 232 39 UK 367 353 322 49 Benelux 118 127 113 21 International 205 166 150 37 Total Outsourcing Services 1,380 1,264 1,161
Outsourcing Services revenue by type
FY'08 FY'09 Pro FY'08 FY'09 Actual forma Actual % of total revenue by £'m £'m £'m type
Applications Management (AM) 652 594 548
48
Infrastructure Management (IM) 599 594 545
43
Business Process Outsourcing 129 76 68
9(BPO)
Total Outsourcing Services 1,380 1,264 1,161
100revenue Book to bill (%) 124 112
As expected, strong growth in Outsourcing Services continued to compensate forthe lower revenue in consulting and professional services. Outsourcing revenuewas up 9% to £1,380 million and represented 37% of Group revenue, well ahead ofthe Group target of 35%. Outsourcing revenue accounted for more than 20% ofrevenue in all geographies in 2009, with the UK continuing to be the geographywith the highest percentage of revenue from Outsourcing.Our strongest growth was in AM and BPO, up 10% and 70% respectively on the
backof good wins in 2008. BPO accounted for 9% of total Outsourcing revenue, upfrom 6% in 2008.
Adjusted operating profit was £96 million (2008: £84 million), giving an adjusted operating margin of 6.9% (2008: 6.7%). The increase in adjusted operating margin was due to tight control of the cost base, increased efficiency and further transition of activities offshore.
Book to bill for the period was 124% (2008: 112%). Continued investments insales and marketing resulted in an increased order backlog, up 16%. In theNordics, orders were up 8%, with our first half win at TeliaSonera being themost significant contributor to 2009 growth. Major wins with the PoliceNational Database in the first half and with the Crown Prosecution Service inthe second half contributed to order growth of 16% in the UK in 2009. Francehad the strongest performance on orders in the second half, with Q3 wins at theFrench Ministry of Finance (ONP - build and run of payroll services) and theEuropean Parliament. Other new orders signed in the second half of the yearincluded a BPO win with Nordic pensions manager SPP as well as extensions of AMwork with a number of existing clients. We also recorded a €29 million,13-year BPO win with the Slovakia National Railways Authority for performanceevaluation and auditing of a new national road pricing system, building on ourIntelligent Transport Systems expertise.Since the end of 2009, we have signed a five year deal to be a strategicoutsourcing partner to communications and logistics provider Posten Norden(formed through the merger of Post Danmark A/S and Posten AB). We will beproviding application management and development for SAP and other applicationsfor 47,500 users in the Posten Norden group. Under the terms of the contract,around 280 of Posten Norden employees in Sweden and Denmark will transfer toLogica. Logica will also take over the responsibility for subcontractors equalto about 150 full time consultants.
Review of continuing operations by geography
Nordics Growth FY'09 on Revenue by market sector FY'08 FY'08 FY'09 H2'09 Pro FY'08 Pro % Actual Actual forma Actual forma of £'m £'m £'m £'m % total Industry, Distribution and 404 194 424 404 (5) 39Transport Public Sector 366 184 366 344 - 36 Other sectors 262 135 268 252 (2) 25 Total 1,032 513 1,058 1,000 (2) 100 Book to bill (%) 120 112
Adjusted operating profit (£'m) 84 44 93 88
Adjusted operating margin (%) 8.2 8.7 8.8 8.8 Revenue was down 2% on a pro forma basis to £1,032 million. Sweden represented49% of Nordic revenue in 2009 (2008: 54%). Adjusted operating profit was £84million, giving an adjusted operating margin of 8.2%.The Finnish business delivered another strong performance on revenue, withrevenue up 3% outperforming a weak GDP. This was offset by the continuedweakness in Sweden where continued pricing pressure and reduced investments byclients in consulting and professional services projects resulted in an overallrevenue decline of 6%. The TeliaSonera win recorded in the first halfcontributed to strong growth in the Telecoms and Media sector.
The percentage of revenue from Outsourcing increased across all geographies in the Nordics.
Despite a difficult Swedish market, cost control on discretionary spend and headcount reductions contributed to improvements in Swedish margin in the second half. A good performance in Finland and Denmark contributed to the margin in the Nordics continuing to be over 8%.
Book to bill for the period was 120% (2008: 112%). Orders were up 4%, with thestrongest order growth in Sweden. In addition to several new wins in theTelecoms sector, we were also selected by SPP, one of the leading companies inthe occupational pensions market in Sweden to introduce a new pensionmanagement system for Swedish municipalities combined with a 10-year BPOcontract. Despite a tough comparative, the backlog in Finland continues to behealthy with good wins across a number of sectors in 2009. In Norway, weannounced a win for a clinical portal for four Oslo hospitals withSouth-Eastern Norwegian Regional Health Authority (Helse S¸r˜st). We have seengrowth in the pipeline in all countries in the Nordics. France Growth FY'09 on Revenue by market sector FY'08 FY'08 FY'09 H2'09 Pro FY'08 Pro % Actual Actual forma Actual forma of £'m £'m £'m £'m % total Industry, Distribution and 300 157 314 281 (4) 38Transport Financial Services 200 99 211 188 (5) 25 Other sectors 291 134 279 252 4 37 Total 791 390 804 721 (2) 100 Book to bill (%) 140 104
Adjusted operating profit (£'m) 60 33 61 55
Adjusted operating margin (%) 7.5 8.2 7.6 7.6
Revenue was down 2% on a pro forma basis to £791 million. Adjusted operating profit was £60 million, resulting in an adjusted operating margin of 7.5%.
The French business continued to deliver strong growth in Outsourcing, with Outsourcing revenue up 19% over 2008. This has offset weakness in consulting as clients postponed discretionary projects.
The revenue decrease in Financial Services and IDT was partially offset by 4%growth in our other sectors, driven by good demand in Energy and Utilities aswell as the Public Sector. Public Sector wins with the European Parliament andONP contributed to particularly good fourth quarter growth.
The actions taken in the first half to improve utilisation, focus on cost management and reduce the level of subcontractors led to a stabilisation in the adjusted operating margin for the year.
Book to bill for the period was 140% (2008: 104%). Order intake was strong, up32% over 2008, with new orders signed with two of our key accounts in thefourth quarter. We began to see an increase in opportunities in the Industrysector in the second half. We won an outsourcing project for an SAPtransformation at a luxury retailer and extensions of work with existingclients.
We increased our recruiting efforts through the fourth quarter to meet an increased backlog coming into 2010.
UK Growth FY'09 on Revenue by market sector FY'09 H2'09 FY'08 FY'08 FY'08 Actual Actual Pro forma Actual Pro forma % £'m £'m £'m £'m % of total Public Sector 467 234 412 412 13 62 Energy and Utilities 104 49 108 108 (4) 14 Other sectors 179 88 190 190 (6) 24 Total 750 371 710 710 6 100 Book to bill (%) 100 99
Adjusted operating profit (£ 64 35 55 55
'm)
Adjusted operating margin (%) 8.5 9.5 7.8 7.8
The UK business had the strongest revenue growth of all our businesses in 2009,with revenue up 6% on a pro forma basis to £750 million. Adjusted operatingprofit for the year was £64 million, resulting in a significant improvement inadjusted operating margin to 8.5%. Revenue from Outsourcing continues to grow as a proportion of the UK business,and accounts for just under half of total UK revenue. The Public Sector was up13% and accounted for 62% of UK revenue in 2009. Energy and Utilities was downin the second half following a strong first half and a tough 2008 comparative. Revenue in the commercial sectors overall declined as a result of continuedpressure on mid-sized project and consulting work, despite a significantincrease in Telecoms and Media.
The strong improvement in adjusted operating margin was due to the annualised savings delivered from the Programme for Growth, continued tight control on discretionary spend as well as direct costs, including a reduction in the number of subcontractors.
Book to bill for the period was 100% (2008: 99%). Order intake has increasedby 6%, with particularly strong Outsourcing order growth in the Public Sector. We have increased the volume of work with existing clients such as Polaris inthe commercial sector and clients such as the Crown Prosecution Service in thePublic Sector. We also secured an important transport win in the third quarterto design, build and support major components of Transport for London's cyclehire scheme (in conjunction with Serco).The pipeline at the beginning of 2010 is up 20% on the beginning of 2009, withsignificant increases in the pipeline of opportunities in transport as well asutilities. New capital spending programmes at utilities are expected to driveopportunities through the second half of 2010. Benelux Growth FY'09 on Revenue by market sector FY'08 FY'08 FY'09 H2'09 Pro FY'08 Pro % Actual Actual forma Actual forma of £'m £'m £'m £'m % total Public Sector 200 89 217 195 (8) 35 Financial Services 145 69 211 189 (31) 25 Industry, Distribution and 107 49 140 126 (24) 19Transport Other sectors 122 58 132 117 (8) 21 Total 574 265 700 627 (18) 100 Book to bill (%) 93 109
Adjusted operating profit (£'m) 24 8 49 43 Adjusted operating margin (%) 4.2 3.1 6.9 6.9
Revenue was down 18% on a pro forma basis to £574 million. Adjusted operating profit was £24 million, resulting in an adjusted operating margin of 4.2%.
2009 was a very disappointing year for our Benelux business. This market is heavily weighted towards short term consulting and professional services assignments which were affected by the economic downturn. We saw a revenue decline across all sectors, with Financial Services and IDT the weakest performers on the back of volume and price reductions agreed in the first half.
We have taken further action to scale back our direct costs in order to createa stronger organisation and to align with lower demand. We have also commencedthe process of divesting of part of our Dutch payroll processing business whichhad been incurring losses. We enter 2010 with a significantly lower cost base,as a result of a reduction in overall headcount (down by 15% over 2008) as wellas in the level of subcontractors. We have also started to see modestimprovements in the utilisation levels.
Book to bill was 93% (2008: 109%).
International Growth FY'09 on Revenue by area FY'09 H2'09 FY'08 FY'08 FY'08 Actual Actual Pro forma Actual Pro forma % £'m £'m £'m £'m % of total Rest of Europe 345 174 363 353 (5) 62 Rest of World 210 113 199 177 6 38 Total 555 287 562 530 (1) 100 Growth FY'09 on Revenue by market sector FY'08 FY'08 FY'09 H2'09 Pro FY'08 Pro Actual Actual forma Actual forma % £'m £'m £'m £'m % of total Energy and Utilities 273 144 256 235 7 49 Industry, Distribution and 103 52 127 126 (19) 19Transport Financial Services 76 40 87 84 (13) 14 Other sectors 103 51 92 85 12 18 Total 555 287 562 530 (1) 100 Book to bill (%) 107 102
Adjusted operating profit (£'m) 40 25 31 26
Adjusted operating margin (%) 7.3 8.8 5.5 5.0
Revenue was down 1% to £555 million, with European revenue accounting for 62%of the total (2008: 65%). Across both areas of the International business, ourlargest sector (Energy and Utilities) was the strongest performer, withadditional strength outside Europe coming from the Public Sector. Adjustedoperating profit was £40 million, giving an adjusted operating margin of 7.3%.
European revenue was down to £345 million. Germany (55% of Rest of Europe revenue) declined 8%, reflecting our exposure to Financial Services and IDT. Revenue in Portugal (31% of Rest of Europe revenue) was stable.
In the Rest of World, Australia was the strongest performer. Marketderegulation and compliance programmes around advanced metering contributed togrowth in the Energy and Utilities sector while our win with AustralianGovernment criminal justice agency, CrimTrac, to deliver, operate and managethe organisation's ICT infrastructure contributed to growth in the PublicSector.
The strong improvement in adjusted operating margin was due to the continued actions to reduce costs including the use of short term working.
Book to bill for the period was 107% (2008: 102%), with the larger countrieswithin the International cluster all having delivered book to bill above 100%. Orders were up significantly in the fourth quarter and the pipeline outsideEurope remains particularly strong.
Employees
At 31 December 2009, we had 38,780 employees (31 December 2008: 39,937). The decline is mainly a result of action we have taken to reduce non-billable headcount.
A slowing of attrition through the year reflected the uncertain economic environment. At the end of December, attrition was at 7% for the Group (31 December 2008: 13%).
With the exception of the Nordics, we ended the year with our billableresources stable or down in all of our major geographies, with utilisationstable or improving through the fourth quarter. We will continue monitoringutilisation across the Group carefully to ensure we can meet demand should themarket recover and currently intend to recruit at modest levels. Through2010, we will continue to focus on performance and bench management, both tomaintain our utilisation levels in areas of weakness and to retain the rightpeople if attrition rises.Retaining the right people with the right skills in the right places will meanbalancing modest onshore recruitment of graduates to refresh our talent for thelonger term with an increase in the percentage of our employees in offshore andnearshore locations. From a relatively low starting point, we expect to doublegraduate recruitment across the Group in 2010, subject to market conditions andattrition. At the end of 2009 we had 5,100 employees in our offshore andnearshore locations (December 2008: 5,000), accounting for approximately 13% oftotal workforce.TaxationThe effective tax rate, before exceptional items and amortisation of intangibleassets initially recognised on acquisition, was 20% (2008: 23%). The decreasedtax rate is due to the satisfactory closure of a number of outstanding prioryear claims. We expect the effective tax rate for 2010 to return to around23%. The total tax charge for the year was £3 million (2008: £5 million). Acquisitions and disposalsWe have commenced the process of disposing of part of our Dutch payrollprocessing business which had been incurring losses. We expect thistransaction to complete in the first half of 2010. We will continue to retainand develop our significant HR Business Process Outsourcing and Payrollbusiness across all of our territories. Financial position Summary cash flow FY'09 FY'08 £'m £'m Adjusted operating profit 272 267
Depreciation and amortisation other than intangibles not recognised 56
58on acquisition Movement in working capital 26 52 Other non-cash movements - 19
Net cash inflow from continuing operations 354
396 Cash conversion 130% 148%
Cash outflow related to restructuring: - Programme for growth (66)
(34)
- Integration, prior years restructuring & disposal costs (7)
(7) Net financing cost paid (27) (32) Income tax paid (19) (15) Capex less disposals of property, plant & equipment and intangible (57) (63)assets
Impact of acquisitions and disposals (47)
(56)
Dividends paid to shareholders (26)
(85) Proceeds from equity placing - 91 Exchange differences 42 (114) Other - (36) Opening net debt (438) (483) Closing net debt (291) (438)
The net cash inflow from trading operations was £354 million (2008: £396 million), leading to cash conversion of 130% (2008 148%).
Cash outflow related to restructuring from the Programme for Growth was £66 million (2008: £34 million).
As a result of lower interest rates and a good cash inflow as we came throughthe second half of 2009, net finance cost paid was lower than last year at £27million (2008: £32 million). While there remains uncertainty around interestrates, we currently expect 2010 finance costs to be at a similar level to2009.
Payment in respect of dividends was £26 million (2008: £85 million), reflecting a lower 2008 final dividend and a lower 2009 interim dividend following our announcement of a dividend rebasing in late 2008.
Group net debt at 31 December 2009 was £291 million (2008: £438 million).
As
a result of positive performance on cash conversion, our net debt/EBITDA of 0.9x was below our previous guidance.
Following the signing of a new €25 million bilateral facility in December 2009,total facilities available at 31 December 2009 were £770 million. The Group hasrepaid €128 million of the €348 million term loan maturing in September 2010.The remainder will be repaid during 2010 from available facilities and cashflow.
Dividend
The Board has proposed a final dividend of 2.3p to be paid on 6 May 2010 toeligible shareholders on the register at the close of business on 9 April2010. This would bring the total dividend for 2009 to 3.3p (2008: 3.0p),reflecting a 10% increase in the proposed dividend. As the economy recovers,we would expect smooth and progressive increases in our dividend towards ahigher payout ratio. This would allow shareholders to benefit directly fromthe growth resulting from our recent investments in the business, whilecontinuing to provide sufficient funds to invest in future growth.Board changesAs previously announced, Jan Babiak joined the Board on 1 January 2010 asNon-Executive Director. Jan will become Chairman of the Audit Committee on theretirement of Roger Payne at the conclusion of our AGM on 5 May 2010.
Reporting basis From January 2010, we will realign our external basis to align with our new management structure and will make the following changes:-
Results for Sweden will be reported as a separate business along with resultsfor our other major geographies (France, UK, Benelux)Results for a newly created Northern and Central Europe business will includethe rest of the Nordics along with Germany, Switzerland and Central and EasternEuropeThe International business will include the results for all other geographiesnot mentioned above.
Pro forma revenue and adjusted operating profit numbers in line with this new reporting structure will be included in the presentation to analysts to be delivered later today and will be available at www.logica.com/Investors.
Next financial calendar datesLogica's next scheduled communications to the market are:5 May 2010 Q1 2010 Interim Management Statement6 August 2010 H1 2010 Interim Results Notes:
With the exception of adjusted operating margin percentages, all numbers inthis release have been rounded. Adjusted operating margin reflects theadjusted operating margin reported in the consolidated financial statements. 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 proceeds on forwardcontracts, the purchase of property, plant, equipment, intangibles andrestructuring and integration activities. Book to bill percentage is a measure of the level of orders relative to revenuein the period.Unless otherwise stated, the comparatives in this release relate to pro formaresults which:reflect average 2009 exchange rates by retranslating prior period actualnumbers at average 2009 exchange rates. This increased 2008 revenue by £276million and adjusted operating profit by £22 millionare adjusted to include the acquisitions and exclude disposals that took placeduring 2009 by adjusting the actual prior period numbers for the relevantperiod owned. This decreased 2009 revenue by £30 million and had no impact onadjusted operating profit.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. FY '08 Pro FY Pro FY '08 forma Actual '09 forma Actual growth growth £'m £'m £'m % % Operating profit 66 86 (23) Add back impact of: Exceptional items 117 92
Amortisation of acquisition related 89 89
intangibles Adjusted operating profit 272 289 267 (6) 2
Adjusted earnings per share is based on net profit attributable to ordinary shareholders, excluding the following items:
discontinued operationsexceptional itemsmark-to-market gains or losses on financial assets and financial liabilitiesdesignated at fair value through profit or lossamortisation of intangible assets initially recognised at fair value in abusiness combinationtax on the items above
Exchange rates used are as follows:
FY 09 H2 '09 H1 '09 FY '08 H2 '08 H1 '08 £1 / € Average 1.12 1.12 1.12 1.25 1.21 1.29
End of period 1.13 1.13 1.17 1.03 1.03 1.26
£1 / SEK Average 11.91 11.66 12.16 12.08 12.05 12.11
End of period 11.53 11.53 12.76 11.37 11.37 11.97
Consolidated statement of comprehensive incomeFor the year ended 31 December 2009 2009 2008 Note £'m £'m Revenue 2 3,701.6 3,588.0 Net operating costs (3,635.3) (3,501.6) Operating profit 66.3 86.4 Analysed as:
Operating profit before exceptional items 183.8
178.7 Exceptional items 3 (117.5) (92.3) Operating profit 2,4 66.3 86.4 Finance costs (35.8) (53.3) Finance income 11.6 10.0
Share of post-tax profits from associates 0.5
0.7 Profit before tax 42.6 43.8 Taxation 6 (2.5) (4.9) Net profit for the year 40.1 38.9
Other comprehensive (expense)/income Exchange differences on translation of foreign operations (93.4)
366.4
Interest rate swaps fair value difference (0.2)
-
Actuarial (losses)/gains on defined benefit plans (58.9)
33.4
Tax on items taken directly to equity 15.8
(7.2)
Other comprehensive (expense)/income for the period, net (136.7)
392.6of tax
Total comprehensive (expense)/income for the period (96.6)
431.5 Profit attributable to: Owners of the parent 40.1 38.7 Non-controlling interests - 0.2 40.1 38.9
Total comprehensive (expense)/income attributable to:
Owners of the parent (95.5) 428.2 Non-controlling interests (1.1) 3.3 (96.6) 431.5 Earnings per share p / share p / share - Basic 8 2.5 2.7 - Diluted 8 2.5 2.6
Details of dividends paid and proposed are provided in Note 7.
Consolidated statement of financial position31 December 2009 2009 2008 Note £'m £'m Non-current assets Goodwill 1,883.6 1,994.2 Other intangible assets 243.4 354.4 Property, plant and equipment 132.8 149.0 Investments in associates 2.6 3.0 Financial assets 12.4 13.8 Retirement benefit assets 27.4 62.1 Deferred tax assets 74.8 59.1 2,377.0 2,635.6 Current assets Inventories 1.1 0.7 Trade and other receivables 1,130.1 1,365.7 Current tax assets 3.1 16.7
Assets classified as held-for-sale 15 1.5
- Cash and cash equivalents 139.3 126.9 1,275.1 1,510.0 Current liabilities Other borrowings 10 (247.9) (10.7) Trade and other payables (992.7) (1,196.6) Current tax liabilities (58.5) (62.1) Provisions 11 (68.3) (36.4) (1,367.4) (1,305.8)
Net current (liabilities)/assets (92.3)
204.2
Total assets less current liabilities 2,284.7
2,839.8 Non-current liabilities Borrowings 10 (182.0) (554.3)
Retirement benefit obligations (83.6)
(63.2) Deferred tax liabilities (75.3) (119.3) Provisions 11 (45.3) (47.1)
Other non-current liabilities (1.2)
(1.0) (387.4) (784.9) Net assets 1,897.3 2,054.9 Equity Share capital 12 160.0 159.8 Share premium account 13 1,107.1 1,101.5 Reserves 630.1 780.2 Total shareholders' equity 1,897.2 2,041.5 Non-controlling interests 0.1 13.4 Total equity 1,897.3 2,054.9 Consolidated statement of cash flowsFor the year ended 31 December 2009 2009 2008 Note £'m £'m
Cash flows from operating activities Net cash inflow from trading operations
353.5 396.3
Cash outflow related to restructuring and integration (67.4) (41.8)activities Cash outflow related to business held for disposal
(5.9) -
Cash generated from operations 14 280.2 354.5 Finance costs paid (33.5) (39.4) Income tax paid (19.4) (15.3) Net cash inflow from operating activities 227.3 299.8
Cash flows from investing activities
Finance income received 6.2 7.2 Dividends received from associates
0.7 0.7
Proceeds on disposal of property, plant and equipment
3.0 0.6
Purchases of property, plant and equipment
(34.4) (44.8)
Expenditure on intangible assets
(24.8) (19.2)
Purchase of non-controlling interests
(47.8) (42.1)
Acquisition of subsidiaries and other businesses, net of cash
- (2.9)acquired
Costs related to prior year disposals
- (11.4)
Disposal of subsidiaries and other businesses, net of cash 0.7 0.8disposed Net cash outflow from investing activities (96.4) (111.1)
Cash flows from financing activities Proceeds from issue of new shares
- 92.5 Proceeds from bank borrowings 20.3 166.2 Repayments of bank borrowings (134.0) (96.6) Repayments of finance lease principal (3.1) (3.2) Proceeds of other borrowings - 2.5 Repayments of other borrowings (1.6) (241.2) Proceeds from forward contracts
6.2 (27.1)
Dividends paid to the Company's shareholders
(26.0) (85.3)
Net cash outflow from financing activities (138.2) (192.2) Net decrease in cash, cash equivalents and bank overdrafts (7.3) (3.5) Cash, cash equivalents and bank overdrafts at the beginning of 9 121.5 99.6the year
Net decrease in cash, cash equivalents and bank overdrafts 9 (7.3) (3.5)
Effect of foreign exchange rates 9
(4.1) 25.4
Cash, cash equivalents and bank overdrafts at the end of the 110.1 121.5year Consolidated statement of changes in equityFor the year ended 31 December 2009 Note Share Share Retained Other Total Non-controlling Total capital premium earnings reserves Shareholder's interest Equity Equity £'m £'m £'m £'m £'m £'m £'m At 1 January 159.8 1,101.5 (349.2) 1,129.4 2,041.5 13.4 2,054.92009 Net profit for - - 40.1 - 40.1 - 40.1the year Other comprehensive income/(expense): Actuarial - - (58.9) - (58.9) - (58.9)losses Tax on items 6 - - 15.8 - 15.8 - 15.8taken to equity Transfer of 75.9 (75.9) - - -realised reserve Interest rate - - (0.2) - (0.2) - (0.2)swaps fair value difference Exchange - - - (92.3) (92.3) (1.1) (93.4)differences Total comprehensive - - 72.7 (168.2) (95.5) (1.1) (96.6)income/(expense) Transactions with owners: Dividends paid 7 - - (26.0) - (26.0) - (26.0) Share-based - - 7.8 - 7.8 - 7.8payment Allotted under 0.2 - (0.2) - - - -share plans Non-controlling 17 - - (36.2) - (36.2) (12.0) (48.2)interest repurchases Disposal of - - - - - (0.2) (0.2)subsidiaries Stamp duty - 5.6 - - 5.6 - 5.6refund Total 0.2 5.6 (54.6) - (48.8) (12.2) (61.0)transactions with owners At 31 December 160.0 1,107.1 (331.1) 961.2 1,897.2 0.1 1,897.32009 At 1 January 145.8 1,098.9 (336.2) 688.5 1,597.0 28.3 1,625.32008 Net profit for - - 38.7 - 38.7 0.2 38.9the year Other comprehensive income/(expense): Actuarial gains - - 33.4 - 33.4 - 33.4 Tax on items 6 - - (7.2) - (7.2) - (7.2)taken to equity Exchange - - - 363.3 363.3 3.1 366.4differences Total comprehensive - - 64.9 363.3 428.2 3.3 431.5income/(expense) Transactions with owners: Dividends paid 7 - - (85.3) - (85.3) 3.1 (82.2) Share-based - - 10.3 - 10.3 - 10.3payment Allotted under 0.5 2.6 - 3.1 3.1share plans Shares issued, 13.5 - - 75.9 89.4 - 89.4net of expenses Non-controlling - - - - - (21.3) (21.3)interest repurchases Other - - (2.9) 1.7 (1.2) - (1.2) Total 14.0 2.6 (77.9) 77.6 16.3 (18.2) (1.9)transactions with owners At 31 December 159.8 1,101.5 (349.2) 1,129.4 2,041.5 13.4 2,054.92008 Note 12 13
Accounting policies and basis of preparation
Basis of preparation
The financial information in this preliminary announcement has been extractedfrom the Group's consolidated financial statements for the year ended 31December 2009. The Group's consolidated financial statements have beenprepared in accordance with International Financial Reporting Standards('IFRSs') as adopted by the European Union ('EU') and those parts of theCompanies Act 2006 ('the Act') that remain applicable to companies reportingunder IFRS.The consolidated financial statements have been prepared under the historicalcost convention with the exception of forward contracts which are measured atfair value. This preliminary announcement was approved by the Board of Directors on 23February 2010. The financial information in this preliminary announcement doesnot constitute the statutory accounts of Logica plc ('the Company') within themeaning of section 435 of the Act.The statutory accounts of the Company for the year ended 31 December 2009,which include the Group's consolidated financial statements for that year, wereunaudited at the date of this announcement. The auditors' report on thoseaccounts is expected to be signed following approval by the Board of Directorson 5 March 2010 and subsequently delivered to the Registrar of Companies afterthe Annual General Meeting on 5 May April 2010. The statutory accounts for theyear ended 31 December 2008, which were prepared under IFRS, have been filedwith the Registrar of Companies. The auditors' report on those accounts wasunqualified and did not contain a statement under section 237(2) and 237(3) ofthe Companies Act 1985.
Adoption of new and revised International Financial Reporting Standards
The accounting policies adopted in these consolidated financial statements areconsistent with those of the annual financial statements for the year ended 31December 2008, with the exception of the following standards, amendments to andinterpretations of published standards adopted during the year:
(a) The following standards, interpretations, and amendments to standards were effective during the year 2009 and have been adopted by the Group:
IFRS 8 'Operating Segments' - The standard replaced IAS 14 'SegmentReporting', and aligns operating segments reported to those segments reportedinternally to senior management. The basis for the segments under IFRS 8 isset out in note 2 below. The standard does not change the recognition,measurement, or disclosure of transactions in the consolidated financialstatements. IAS 1 R 'Presentation of financial statements' - The amendment requires"non-owner" and "owner" changes in equity to be presented separately. It alsorequires that where a statement of financial position is restated that theopening statement of financial position is also disclosed. This will mean thatwhere restatement occurs that three columns rather than two will be reported. Entities can also choose whether to present one or two performance statements. The Group has chosen to present one performance statement. A further impact ofthe amendment is that the primary statements have been renamed.
(b) The following standards, interpretations, and amendments to standards were effective during the year 2009, but had no material impact on the Group:
Amendments issued as part of annual improvements to IFRSs (May 2008).Amendments to IFRS 7 Improving Disclosures about Financial Instruments.Amendments to IFRIC 9 and IAS 39 'Embedded derivatives '.IFRIC 13, 'Customer loyalty programmes'.IFRIC 15 'Agreements for the construction of real estates'.IAS 23 R 'Borrowing costs' - the amendment requires that borrowing costsincurred in the construction and production of qualifying assets commencedafter 1 January 2009 are capitalised.IFRS 2 (Amendment), 'Share-based payment', effective for accounting 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.
(c) The following standards , interpretations and amendments have been early adopted by the Group:
IFRS 3 R, 'Business combinations'- The revised standard requires that allacquisition-related costs are to be expensed in the period incurred rather thanadded to the cost of the investment, that changes to contingent considerationfollowing a business combination are shown in the statement of comprehensiveincome rather than changing goodwill, and that changes to deferred tax assetsrelating to business combinations are only reflected within goodwill if theyoccur within the measurement period. Furthermore, purchase accounting onlyapplies at the point when control is achieved. The Group has applied IFRS 3 Rprospectively to all business combinations from 1 January 2009. Where abusiness combination and the related assets and liabilities arising wereacquired before 1 January 2009 they are not adjusted by IFRS 3 R and as aresult comparatives for 2008 have not been restated.IAS 27 R, 'Consolidated and Separate Financial Statements', where IFRS 3 R isapplied prior to 1 July 2009 IAS 27 R must also be applied from the same date.The revised standard requires that acquisitions and disposals that do notresult in a change of control are accounted for within equity. Any differencebetween the change in the non-controlling interest and the fair value of theconsideration paid or received is recognised directly in equity and attributedto the owners of the parent and does not generate goodwill.
(d) The following standards, interpretations, and amendments to existing standards are not yet effective and have not been early adopted by the Group:
IFRIC 16, 'Hedges of a net investment in a foreign operation'.
IFRIC 18, 'Transfers of Assets from Customers'.
IAS 28 'Investments in Associates', effective on or after 1 July 2009, amended to reflect changes to IFRS 3.
IAS 31 'Interests in Joint Ventures', effective on or after 1 July 2009, amended to reflect changes to IFRS 3.
IFRIC 17 'Distributions of non-cash assets to owners'. Applies for periods beginning on or after 1 July 2009; clarifies the accounting where assets other than cash are distributed to shareholders.
IAS 39 'Financial Instruments: Recognition and Measurement, effective on orafter 1 July 2009, amended to clarify how existing principles should be appliedin respect of 'a one sided risk in a hedged item' and 'inflation in a financialhedged item'. Inflation risk can only be hedged if contractually specified andit is possible to used purchased options as a hedging instrument.IAS 39 'Financial Instruments: Recognition and Measurement', effective on orafter 30 June 2009, amended to clarify the treatment of embedded derivativeswhere transactions are reclassified from Fair Value Through Profit or Loss(FVTPL). Where transactions are reclassified embedded derivatives may need tobe separated from the host and continue to be treated as FVTPL.
(e) The following standards, interpretations, and amendments to existing standards are not yet effective, have not yet been endorsed by the EU and have not been early adopted by the Group:
Amendments issued as part of annual improvements to IFRSs (April 2009);
IFRS 9 'Financial Instruments', effective on or after 1 January 2013;
Amendment to IFRIC 14 'Prepayments of a Minimum Funding Requirement'. effective on or after 1 January 2011;
IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments', effective on or after 1 July 2010;
Amendments to IFRS 2 'Group cash-settled share based payment transactions', effective on or after 1 January 2010;
Amendments to IFRS 1 'Additional Exemptions for First-time Adopters', effective on or after 1 January 2010;
Amendment to IAS 32 'Classification of Rights Issues', effective on or after 1 February 2010;
IAS 24 R 'Related Party Disclosures', effective on or after 1 January 2011.
Segment information
In accordance with IFRS 8 'Operating Segments' Logica has derived theinformation for its operating segments using the information used by the ChiefOperating Decision Maker. The Group has identified the Executive Committee asthe Chief Operating Decision Maker as it is responsible for the allocation ofresources to operating segments and assessing their performance. The profitmeasure used by the Executive Committee is the adjusted operating profit, asdescribed in Note 4. Operating segments are reported in a manner which isconsistent with the operating segments produced for internal managementreporting. The operating segments have not changed as a result of implementingIFRS 8. However, during the current period Logica has consolidated the Germanbusiness into the International segment, which has resulted in reclassificationof £214.2 million of revenue, £2.9 million of operating profit and £11.9million of adjusted operating profit (Note 4) relating to financial year ended31 December 2008 from Germany to the International segment. Also, theNetherlands and Belgium businesses were consolidated into a newly createdBenelux segment, which has resulted in a reclassification of £54.3 million ofrevenue, £0.2 million of operating loss and £0.2 million of adjusted operatingprofit (Note 4) relating to financial year ended 31 December 2008 from theInternational segment to the Benelux segment.
Logica is organised into five operating segments based on the location of assets. Segment revenue and profit after tax are disclosed below:
Revenue Profit 2009 2008 2009 2008 £'m £'m £'m £'m Nordics 1,032.0 999.6 0.7 13.7 France 790.8 720.6 18.5 17.9 United Kingdom 750.4 709.7 42.6 11.3 Benelux 573.5 627.5 (22.9) 34.7 International 554.9 530.6 27.4 8.8 Revenue and operating profit 3,701.6 3,588.0 66.3 86.4 Finance costs (35.8) (53.3) Finance income 11.6 10.0 Share of post-tax profits from associates 0.5 0.7 Taxation (2.5) (4.9) Profit after tax 40.1 38.9
The share of post-tax profits from associates in the years ended 31 December 2009 and 2008 was attributable to the Nordics segment.
Exceptional items
The exceptional items recognised within operating profit were as follows:
2009 2008 £'m £'m Restructuring costs (95.1) (84.3) Business held for disposal (18.9) -Disposal of businesses (3.5) - Integration costs - (8.0) (117.5) (92.3) During the year ended 31 December 2009, the Group incurred a charge of £95.1million (2008: £84.3 million) relating to the restructuring of the businessfollowing the 2008 Business review. The restructuring comprised costsassociated with the closure of offices predominantly in the UK and France, andredundancy of staff across the Group.
Exceptional costs relating to a business held for disposal amounted to £18.9 million, and relates to the Netherlands. This includes £7.7 million of impairment of intangible assets (Note 15).
This year, the Group completed the disposals of its two non-core businesses,'Integrata AG' and 'Cocq Datendienste GmbH' in Germany. Two other non-coredivisions were also disposed of in the Nordic region. Disposals generated a netloss of £3.5 million (Note 16).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. 2009 2008 £'m £'m Operating profit 66.3 86.4 Exceptional items (Note 3) 117.5 92.3 Amortisation of intangible assets initially recognised on acquisition 88.5 88.7 Adjusted operating profit 272.3 267.4 Adjusted operating profit/(loss) analysis per geographical segment was asfollows: 2009 Operating Exceptional Amortisation
Adjusted operating Profit/ items of profit (loss) intangibles* £'m £'m £'m £'m Nordics 0.7 28.5 55.1 84.3 France 18.5 12.1 28.9 59.5 United 42.6 21.5 - 64.1Kingdom Benelux (22.9) 47.0 - 24.1 International 27.4 8.4 4.5 40.3 66.3 117.5 88.5 272.3 2008 Operating Exceptional Amortisation Adjusted Profit items of intangibles* operating profit £'m £'m £'m £'m Nordics 13.7 16.4 57.7 87.8 France 17.9 10.7 25.9 54.5 United Kingdom 11.3 44.0 - 55.3 Benelux 34.7 8.5 - 43.2 International 8.8 12.7 5.1 26.6 86.4 92.3 88.7 267.4
* Amortisation of intangible assets initially recognised on acquisition.
Employees Year end Average 2009 2008 2009 2008 Number Number Number Number Nordics 9,622 9,767 9,730 9,742 France 8,882 9,144 8,964 9,059 United Kingdom 5,365 5,424 5,388 5,525 Benelux 5,490 6,192 5,872 6,414 International 9,421 9,410 9,547 8,514 38,780 39,937 39,501 39,254
The employee benefit expense for the year amounted to:
2009 2008 £'m £'m
Salaries and short-term employee benefits 1,638.2
1,514.8 Social security costs 313.5 305.6 Pension costs 135.5 122.8 Share-based payments 9.5 10.9 2,096.7 1,954.1 Employee benefit expense of £73.5 million (2008: £42.4 million) has not beenincluded in the table above but is included within the £95.1 million (2008: £92.3 million) charge for restructuring and integration costs in Note 3 above.Taxation 2009 2008 £'m £'m Current tax: UK corporation tax 15.7 (1.2) Overseas tax 25.5 39.1 41.2 37.9 Deferred tax: UK corporation tax (1.4) (5.6) Overseas tax (37.3) (27.4) (38.7) (33.0) 2.5 4.9 The effective tax rate on operations for the year, before the share of post-taxprofits from associates, exceptional items and amortisation of intangibleassets initially recognised on acquisition, was 20.0% (2008: 22.5%), of which acharge of £20.6 million (2008: £2.2 million) related to the United Kingdom. Theeffective tax rate for 2009 was lower than 2008 due to the satisfactory closureof a number of outstanding prior year claims.
The effective tax rate on exceptional items was 18.3% (2008: 19.0%) and the effective tax rate on amortisation of intangible assets initially recognised on acquisition was 28.9% (2008: 31.5%).
The tax charge from operations is lower than the standard rate of corporationtax in the UK applied to profit before tax. The differences are explainedbelow. 2009 2008 £'m £'m Profit before tax 42.6 43.8 Less: share of post-tax profits from associates
(0.5) (0.7)
Profit before tax excluding share of post-tax profits from associates 42.1 43.1
Tax at the UK corporation tax rate of 28% (2008: 28.5%)
11.8 12.3
Adjustments in respect of previous years
0.2 (5.8)
Adjustment for foreign tax rates
5.6 4.0 Tax loss utilisation (10.0) (9.2) Income not taxable (13.1) (1.5)
Deferred tax assets not recognised
8.0 5.1 Tax charge 2.5 4.9 In addition to the amounts charged to the statement of comprehensive income, adeferred tax credit of £15.8 million (2008: charge of £7.2 million) relating toretirement benefit schemes was recognised directly in equity.
The current tax related to exceptional items for the year ended 31 December 2009 was a tax credit of £21.5 million (2008: £17.5 million).
Dividends
The Directors are proposing a final dividend in respect of the year ended 31December 2009 of 2.3p per share, which would reduce shareholders' funds byapproximately £36.5 million. The proposed dividend is subject to approval atthe AGM on 5 May 2010 and has not been recognised as a liability in thesefinancial statements. The final dividend will be paid on 6 May 2010 toshareholders listed on the share register on 9 April 2010.
The amounts recognised as distributions to owners were as follows:
2009 2008 2009 2008 p / share p / share £'m £'m
Interim dividend, relating to 2009 / 2008 1.00 2.40 16.5 34.8
Final dividend, relating to 2008 / 2007 0.60 3.50 9.5 50.5 1.60 5.90 26.0 85.3
Dividends payable to employee share ownership trusts are excluded from the amounts recognised as distributions in the table above.
Earnings per share 2009 Earnings Weighted average Earnings number per of shares Share Earnings per share £'m million pence Profit for the year 40.1
Earnings attributable to ordinary shareholders 40.1 1,586.2
2.5 Basic EPS 40.1 1,586.2 2.5
Effect of share options and share awards - 23.4
- Diluted EPS 40.1 1,609.6 2.5 Adjusted earnings per share
Earnings attributable to ordinary shareholders 40.1 1,586.2
2.5 Add back: Exceptional items, net of tax 96.0 - 6.0
Amortisation of intangible assets initially 62.9 -
4.0recognised on acquisition, net of tax Basic adjusted EPS 199.0 1,586.2 12.5
Effect of share options and share awards - 23.4
(0.1) Diluted adjusted EPS 199.0 1,609.6 12.4 2008 Weighted average Earnings Earnings number per of share shares Earnings per share £'m million pence Profit for the year 38.9 Non-controlling interests (0.2) Earnings attributable to ordinary shareholders 38.7 1,453.4 2.7 Basic EPS 38.7 1,453.4 2.7 Effect of share options and share awards - 24.5 (0.1) Diluted EPS 38.7 1,477.9 2.6 Adjusted earnings per share Earnings attributable to ordinary shareholders 38.7 1,453.4 2.7 Add back: Exceptional items, net of tax 74.8 - 5.1
Mark-to-market loss on convertible bonds designated at fair value through profit or loss, net of tax 3.8
- 0.3
Amortisation of intangible assets initially recognised
on acquisition, net of tax 60.8 - 4.2 Basic adjusted EPS 178.1 1,453.4 12.3 Effect of share options and share awards -
24.5 (0.1)
Effect of convertible bonds, excluding mark-to-market 3.5 48.5 (0.3)gain, net of tax Diluted adjusted EPS 181.6 1,526.4 11.9
All operations as at 31 December 2009 and 2008 were continuing.
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 (ESOP) trusts, which are treated as cancelled.
The convertible bonds were not included in the calculation of diluted earningsper share for the year ended 31 December 2008 as they were anti-dilutive;however, the convertible bonds were dilutive for the purposes of calculatingdiluted adjusted earnings per share for the year ended 31 December 2008.
Reconciliation of movements in net debt
At Other At 1 non-cash Exchange 31 January Cash movements differences December 2009 flows 2009 £'m £'m £'m £'m £'m Cash and cash 126.9 16.9 - (4.5) 139.3equivalents Bank overdrafts (5.4) (24.2) - 0.4 (29.2) 121.5 (7.3) - (4.1) 110.1 Finance leases (7.5) 3.1 (1.6) (0.2) (6.2) Bank loans (548.5) 113.7 (3.5) 46.1 (392.2) Other loans (3.6) 1.6 - (0.3) (2.3) Net debt (438.1) 111.1 (5.1) 41.5 (290.6) Borrowings 2009 2008 £'m £'m Current Bank overdrafts 29.2 5.4 Bank loans 215.0 - Finance lease obligations 3.0 3.9 Other borrowings 0.7 1.4 247.9 10.7 Presented as: Other borrowings 247.9 10.7 247.9 10.7 Non-current Bank loans 177.2 548.5 Finance lease obligations 3.2 3.6 Other borrowings 1.6 2.2 182.0 554.3 Bank loans
At 31 December 2009, the Group had the following unsecured principal bank facilities:
a €512.5 million syndicated multi-currency bank facility. The facility consistsof a €205 million term loan maturing 26 November 2011 and a €307.5 millionrevolving credit facility maturing on 26 November 2013. The facility wasincreased by €12.5 million on 30 June 2009. At 31 December 2009, €205 million(£181.4 million) was drawn down under the facility (2008: £194.2 million) andpaid interest at an average rate of 4.65% (2008: 6.74%).a €219.2 million (£194.0 million) (2008: €348 million (£337.9 million)) termloan maturing on 19 September 2010. The company repaid and cancelled €128.8million (£114.0 million) of the term loan in December 2009. At 31 December 2009and 31 December 2008, the term loan was drawn down in full and paid interest atan average rate of 2.70% (2008: 5.60%).
a £100 million receivables facility was signed on 22 July 2009. The facility matures on 22 July 2011 and was undrawn at 31 December 2009.
a €50 million forward starting bilateral term loan was signed on 31 July 2009. The term loan will be available from 19 September 2010 for 30 months maturing19 March 2013. a €25 million bilateral revolving credit facility was signed on 21 December2009. The facility matures on 21 December 2013. The facility was undrawn at31 December 2009.
The obligations of the borrowers under the €512.5 million facility and the € 219.2million bank loan are guaranteed by the principal UK and Dutch trading subsidiaries, Logica UK Limited and Logica Nederland B.V.
Provisions Vacant properties Restructuring Other Total £'m £'m £'m £'m At 1 January 2009 43.9 24.3 15.3 83.5 Charged in the year 19.1 71.6 12.1 102.8 Utilised in the year (17.6) (49.0) (6.1) (72.7) Unused amounts reversed - (0.1) - (0.1) Unwinding of discount 2.0 - - 2.0 Exchange differences (0.6) (1.1) (0.2) (1.9) At 31 December 2009 46.8 45.7 21.1 113.6 Analysed as: Current liabilities 68.3 Non-current liabilities 45.3 113.6 Vacant properties
At 31 December 2009, provisions for vacant properties represented residuallease commitments, together with associated outgoings, for the remaining periodon certain property leases, after taking into account sub-tenant arrangements.The property costs provided for are mainly related to properties located in theUnited Kingdom. At 31 December 2009, non-current vacant property provisionsamounted to £30.8 million (2008: £31.7 million) of which £22.9 million (2008: £29.5 million) was payable within five years and the balance thereafter.
Restructuring
At 31 December 2009, the restructuring provision mainly related to therestructuring of the businesses following the outcome of the Group's businessreview announced 22 April 2008. The restructuring programme comprised propertyrationalisation, a reduction in headcount and other measures to reduce the costbase. Where appropriate, provisions arising from the property rationalisationare categorised as vacant property. At 31 December 2009, £42.9 million of therestructuring provision was payable within one year, with the remaining balancepayable between two and five years.
Other
At 31 December 2009, the other provisions related to the value of legal claimsand business disposal provisions. At 31 December 2009, £9.4 million of theother provision was payable within one year, with the remaining balance payablebetween two and five years.12. Share capital 2009 2008 Authorised £'m £'m 2,250,000,000 (2008: 2,250,000,000) ordinary shares of 10 pence each 225.0 225.0 2009 2008 Allotted, called-up and fully paid Number £'m Number £'m At 1 January 1,598,359,521 159.8 1,457,646,079 145.8 Allotted under share plans 2,256,285 0.2 5,713,442 0.5 Shares issued - - 135,000,000 13.5 At 31 December 1,600,615,806 160.0 1,598,359,521 159.8 The Company has one class of authorised and issued share capital, comprisingordinary shares of 10p each. Subject to the Company's Articles of Associationand applicable law, the Company's ordinary shares confer on the holder: theright to receive notice of and vote at general meetings of the Company; theright to receive any surplus assets on a winding-up of the Company; and anentitlement to receive any dividend declared on ordinary shares. Share premium 2009 2008 £'m £'m At 1 January 1,101.5 1,098.9
Premium on shares allotted under share plans -
2.6 Stamp duty refund 5.6 - At 31 December 1,107.1 1,101.5
During the year ended 31 December 2009, the share premium account was increased by £5.6 million due to the refund of stamp duty related to the issuance of ordinary shares to acquire a 95.33% equity interest in WM-data in 2006.
Reconciliation of operating profit to cash generated from operations
2009 2008 £'m £'m Operating profit from operations 66.3 86.4 Adjustments for: Share-based payment expense 9.5 10.8 Depreciation of property, plant and equipment
43.7 42.7
Loss on disposal of non-current assets
0.3 1.9
Loss on sale of subsidiaries and held-for-sale businesses
16.7 -
Amortisation of intangible assets
101.2 103.7
Impairment of property, plant and equipment included in
- 6.7restructuring costs Non-cash element of expense for defined benefit plans (8.2) (3.9) 163.2 161.9 Net movements in provisions 25.4 54.1
Movements in working capital:
Financial assets 0.9 - Inventories (0.3) 0.9 Trade and other receivables 143.5 (46.4) Trade and other payables (118.8) 97.6 25.3 52.1 Cash generated from operations
280.2 354.5
Add back: Cash outflow related to restructuring and integration 67.4 41.8activities
Add back: Cash outflow related to business held for disposal
5.9
Net cash inflow from trading operations 353.5 396.3
Assets classified as held-for-sale
The assets classified as held for sale relate to intangible assets held by theGroup's payroll processing division in the Netherlands. Following a decisionby the Board of Directors the Group has decided to sell the business. The saleof the business is expected to be completed during the first half of 2010.
Disposals
During the year the Group disposed of two non-core businesses in Germany.
On 1 January 2009 the Group sold 'Cocq Datendienste GmbH' for consideration of€1. The company operates a scanning centre. The Group recorded an impairmentloss of £0.3 million in the year ended 31 December 2008 on its investment andno further profit or loss was recorded on the disposal. The companycontributed £1.9 million in revenue during the financial year 2008.On 27 January 2009 the Group sold its 91% interest in 'Integrata AG', a Germantraining business. The business was sold for consideration of €5.0 million,leading to a profit of £0.6 million on disposal. The company contributedrevenue of £26.4 million during the financial year 2008.
The group has also disposed of two non-core divisions in the Nordics which generated combined losses on disposal of £4.1 million. The divisions contributed £5.0 million to group revenue in 2009 (2008: £2.0 million).
Acquisitions
During February and March 2009 the Group made payments to acquire the noncontrolling interest in Logica Aktiebolag, a Group company, and redeem theremaining shares in and convertibles issued by the Swedish subsidiary, whichwas part of the WM-data Group acquisition in 2006. A total of £48.6 millionwas paid. This included £0.8 million to redeem convertible debentures. Thenon controlling interest was held at £12.0 million at the date of acquisition. Under IFRS 3 R which the Group has early adopted from 1 January 2009, the £36.2million (excluding a foreign exchange gain of £0.4 million included intranslation reserves) is recorded as a movement in equity.
Contingent liabilities
The size, structure and geographic spread of the Group and its activitiesnaturally exposes it to potential scrutiny and possible claims including taxand other regulatory authorities in the normal course of operations. Theresults of tax audits and other similar enquiries are normally reflected in theaccounts on an accruals basis where a recovery or liability can be predictedwith reasonable certainty. Occasionally claims may be levied against the Groupby such authorities, the outcomes of which cannot be predicted with reasonablecertainty. While Logica strongly believes it complies with all relevant lawsand regulations, and would vigorously defend itself against any such claims, ifit was unsuccessful the enforcement of such claims could from time to time havea potentially material impact on the Group's results and financial position. Aspart of those enquiries, the Group has, in 2009, received a €46million, whichis net of €13 million tax, VAT claim from the French tax authorities. Theclaim relates to the VAT treatment of goods exported from France during theyears 2004-2006. The Group has carefully analysed these claims and obtainedexternal experts' advice, as a result of which it considers that they arewithout merit. The Group is robustly contesting these claims through theappropriate channels albeit this is expected to be a protracted process.
Euro translation of selected financial information
The Group has presented a translation of the consolidated statement ofcomprehensive income, statement of financial position and statement of cashflows into euros to assist users of the financial statements more familiar withthat currency. The statement of comprehensive income and statement of cashflows in euros have been calculated by converting the consolidated sterlingfigures to euros at an average rate of €1.12 to £1 (2008: €1.25 to £1) exceptthe opening and closing net cash balance in the statement of cash flow, whichuses the same rates as used in the statement of financial position as mentionedbelow. The statement of financial position has been calculated by convertingthe sterling figures to euros at the closing rate of €1.13 to £1 (2008: €1.03to £1).
Euro translation of consolidated statement of comprehensive income For the year ended 31 December 2009
2009 2008 €'m €'m Revenue 4,145.8 4,485.0 Net operating costs (4,071.5) (4,377.0) Operating profit 74.3 108.0 Analysed as:
Operating profit before exceptional items 205.9
223.4 Exceptional items (131.6) (115.4) Operating profit 74.3 108.0 Finance costs (40.1) (66.6) Finance income 12.9 12.5
Share of post-tax profits from associates 0.6
0.9 Profit before tax 47.7 54.8 Taxation (2.8) (6.2) Net profit for the year 44.9 48.6
Other comprehensive (expense)/income
Exchange differences on translation of foreign operations (104.6)
458.0
Interest rate swaps fair value difference (0.2)
-
Actuarial (losses)/gains on defined benefit plans (66.0)
41.8
Tax on items taken directly to equity 17.7
(9.0)
Other comprehensive (expense)/income for the period, net (153.1)
490.8of tax
Total comprehensive (expense)/income for the period (108.2)
539.4 Profit attributable to: Owners of the parent 44.9 48.3 Non-controlling interests - 0.3 44.9 48.6
Total comprehensive (expense)/income attributable to:
Owners of the parent (107.0) 535.3 Non-controlling interests (1.2) 4.1 (108.2) 539.4 Earnings per share cents/ cents/ share share - Basic 2.8 3.3 - Diluted 2.8 3.2
Euro translation of consolidated statement of financial position 31 December 2009
See page 31 for basis of translation.
2009 2008 €'m €'m Non-current assets Goodwill 2,128.5 2,054.0 Other intangible assets 275.0 365.0 Property, plant and equipment 150.1 153.5 Investments in associates 2.9 3.1 Financial assets 14.0 14.2 Retirement benefit assets 31.0 64.0 Deferred tax assets 84.5 60.9 2,686.0 2,714.7 Current assets Inventories 1.2 0.7 Trade and other receivables 1,277.1 1,406.7 Current tax assets 3.5 17.2
Assets classified as held-for-sale 1.7
- Cash and cash equivalents 157.4 130.7 1,440.9 1,555.3 Current liabilities Other borrowings (280.1) (11.0) Trade and other payables (1,121.7) (1,232.5) Current tax liabilities (66.1) (64.0) Provisions (77.2) (37.5) (1,545.1) (1,345.0)
Net current (liabilities)/assets (104.2)
210.3
Total assets less current liabilities 2,581.8
2,925.0 Non-current liabilities Borrowings (205.7) (571.0)
Retirement benefit obligations (94.5)
(65.1) Deferred tax liabilities (85.1) (122.9) Provisions (51.2) (48.5)
Other non-current liabilities (1.4)
(1.0) (437.9) (808.5) Net assets 2,143.9 2,116.5 Equity Share capital 180.8 164.6 Share premium account 1,251.0 1,134.5 Reserves 712.0 803.6 Total shareholders' equity 2,143.8 2,102.7 Non-controlling interests 0.1 13.8 Total equity 2,143.9 2,116.5
Euro translation of consolidated statement of cash flow For the year ended 31 December 2009
See page 31 for basis of translation.
2009 2008 €'m €'m
Cash flows from operating activities Net cash inflow from trading operations 395.9
495.4
Cash outflow related to restructuring and (75.5)
(52.3)integration activities
Cash outflow related to business held for (6.6)
-disposal
Cash generated from operations 313.8
443.1 Finance costs paid (37.6) (49.2) Income tax paid (21.7) (19.1)
Net cash inflow from operating activities 254.5
374.8
Cash flows from investing activities
Finance income received 6.9 9.0
Dividends received from associates 0.8
0.9
Proceeds on disposal of property, plant and 3.4
0.7equipment
Purchases of property, plant and equipment (38.5)
(56.0)
Expenditure on intangible assets (27.8)
(24.0)
Purchase of non-controlling interests (53.5)
(52.6)
Acquisition of subsidiaries and other -
(3.6)
businesses, net of cash acquired Disposal costs of prior year disposals -
(14.3)
Disposal of subsidiaries and other businesses, 0.8
1.0net of cash disposed
Net cash outflow from investing activities (107.9)
(138.9)
Cash flows from financing activities Proceeds from issue of new shares -
115.6 Proceeds from bank borrowings 22.7 207.8 Repayments of bank borrowings (150.1) (120.8)
Repayments of finance lease principal (3.5)
(4.0)
Proceeds from other borrowings -
3.1
Repayments of other borrowings (1.8)
(301.5)
Proceeds from forward contracts 7.0
(33.9)
Dividends paid to the Company's shareholders (29.1)
(106.6)
Net cash outflow from financing activities (154.8)
(240.3)
Net decrease in cash, cash equivalents and (8.2)
(4.4)bank overdrafts
Cash, cash equivalents and bank overdrafts at 125.1
135.4the beginning of the year
Net decrease in cash, cash equivalents and (8.2)
(4.4)bank overdrafts
Effect of foreign exchange rates 7.5
(5.9)
Cash, cash equivalents and bank overdrafts at 124.4
125.1
the end of the year
vendorRelated Shares:
LOG.L