23rd Feb 2011 07:00
23 February 2011
Logica reports a strong finish to 2010
Headlines1
Full year revenue up 1% pro forma at £3,697 million, with fourth quarter up 4%
Outsourcing Services revenue up 10% in 2010, while the decline in Consulting and Professional Services revenue slowed to 5%
Second half growth driven by a sharp recovery in Financial Services
Adjusted operating margin in line with last year at 7.4% despite a challenging market in the Benelux
Threefold increase in operating profit to £211 million due to reduction in amortisation and exceptional charges
Net debt/EBITDA at 0.8x at year end, with net debt at £280 million (2009: £291 million)
Full year dividend recommended to be 4.2p, up 27% over 2009
Well positioned for growth and modest margin improvement as market recovers in 2011
Consulting and Professional Services book to bill at 105% (2009: 108%)
Major wins worth more than £475 million in the first two months of 2011, coupled with 2010 Outsourcing book to bill of 110%, underpin strong Outsourcing backlog
Continued benefit of overhead reduction
For the twelve months ended 31 December 2010, results were as follows:
Continuing FY 2009 Operations FY 2010 FY 2009 pro Actual actual forma Growth/(Decline) Actual Pro Forma Book to bill 107% 114% Revenue £3,697m £3,702m £3,668m 0% +1% Adjusted operating profit £272m £272m £272m 0% 0% Adjusted operating margin 7.4% 7.4% 7.4% 0% Basic adjusted EPS 12.3p 12.5p (2%) Dividend per share 4.2p 3.3p +27% Statutory results: Operating profit £211m £66m +£145m Profit before tax £193m £43m +£150m Basic EPS 9.6p 2.5p +7.1p
For definition of pro forma, adjusted operating profit, adjusted operating margin and basic adjusted EPS, please see note on page 20.
Commenting on today's announcement, Andy Green, CEO, said:
"We finished 2010 in a strong position. The client and people focused strategythat we established at Logica three years ago has helped us to weather thedownturn well. The well balanced nature of our business across geographies andindustry sectors continues to bring us benefits, with a particularly strongperformance in territories like France and the Nordics and a sharp recovery
inFinancial Services.
I am delighted with the significant contract wins of recent weeks with theSerious Organised Crime Agency (SOCA) in the UK, an important client in theNetherlands and Shell for commercial fleet fuel cards. These wins demonstrateour ability to compete successfully on some of the largest deals awarded so
farin 2011. Our good performance and strong order backlog allow us to look to the futurewith confidence. We are well positioned for revenue growth and modest marginimprovement as the market recovers through 2011. We continue to invest inensuring we are competitive and responsive to changing client needs, providingour people with the opportunity to build sustainable careers at Logica anddelivering improving returns to our shareholders."
For further information, please contact:
Logica Investor relations: Karen Keyes/Jose Cano +44 (0) 20 7446 1338/+44 (0) 7801 723682
Logica Media relations: Carolyn Esser/Louise Fisk +44 (0) 7841 602391/+44 (0) 7798 857770
Brunswick: Tom Buchanan +44 (0) 20 7404 5959
1 All numbers in this release relate to pro forma numbers as defined on page 20.
Financial overview
Group revenue was £3,697 million (2009 actual: £3,702 million). This represented a pro forma growth of 1%, slightly ahead of guidance. Our top 50 clients accounted for 42% of revenue (2009 actual: 42%).
Adjusted operating profit was £272 million (2009 actual: £272 million),representing an adjusted operating margin of 7.4% (2009: 7.4%). Basic adjustedEPS was 12.3p (2009 actual: 12.5p) on a weighted average number of shares of1,589 million (2009: 1,586 million). Basic earnings per share was 9.6p (2009:2.5p). Operating profit was £211 million, compared to £66 million on an actualbasis for 2009. Profit before tax was £193 million (2009 actual: £43 million). Net cash inflow from trading operations was £270 million (2009 actual: £354million), resulting in cash conversion of 99% (2009: 130%). Closing net debtwas £280 million (31 December 2009: £291 million) and represented net debt/EBITDA of 0.8x.
Market overview and outlook
Market overview
Growth patterns in 2010 have varied across our geographies. Among our large countries, we have seen particular strength in our Northern European geographies and France.
Demand was less robust in the UK and the Benelux, where elections held in 2010and general macroeconomic uncertainty kept the pricing environmentcompetitive. We expect the impact of 2010 elections and consequent changes ofgovernment to lessen through 2011. Our strong long term relationships shouldhelp us to take advantage of the opportunities that the current environmentprovides to transform government and reduce its longer term spending.
The most consistent and marked trend in all our markets has been the return of demand with Financial Services clients as they look to upgrade and refresh their systems and put in place risk management and compliance solutions.
Our Consulting and Professional Services business showed signs of improvement through the second half.
Lead indicators like attrition and utilisation suggest that this market will further improve in 2011 in most of our geographies. Clients are showing increasing interest in taking advantage of the opportunities that security, sustainability and Cloud and Future IT offer.
The longer term driver of growth continues to be Outsourcing. Clients remainfocused on the need to reduce costs and streamline their IT applications. Thedemand for blended delivery from nearshore and offshore centres is expected
toaccelerate through 2011.
Continued management of our skills base will be key to meeting demand. We arerecruiting and hiring people both onshore and offshore to ensure we have theright skills in the right places to meet this demand.
Outlook
The balance of our business across markets and sectors will continue to be anasset in 2011. We will continue our investments in areas like Cloud and FutureIT to position us for future growth. A healthy pipeline in Consulting andProfessional Services, as well as significant Outsourcing orders in the firstquarter of 2011 coupled with 2010 Outsourcing book to bill of 110%, havecontributed to a good order backlog, which underpins our confidence thatrevenue will again grow faster than the market. We expect modest operating margin improvement in 2011. A stronger market andthe overhead reductions we have put in place over the last three years willcontribute to improvements in operating margin through the year. Since thebeginning of 2010, any ongoing costs associated with managing our skills basehave been recorded as operating costs and not exceptional charges. In 2011, the£30 million of such costs we expect to incur will fall predominantly in thefirst half which means that first half operating margin will be behind lastyear. We expect around £15 to £20 million of benefit from these changesbeginning in the second quarter.
Progress on longer term goals
Over the last three years, we have performed well across the group delivering stable revenue and operating margin. Our longer term focus remains on differentiating our offer to clients in order to continue to increase our market share in a tough market. We plan to lower overhead costs, work more efficiently and boost productivity. This should allow us to steadily move towards double digit margins as markets grow over the medium term.
Progress with clientsNew orders totalled £3,972 million in the year (2009: £4,190 million), drivenby the renewed demand in the Financial Services and TTI (Transport, Trade andIndustrial) sectors. Book to bill was 107% (2009:114%), despite our £157million contract with the UK's Serious Organised Crime Agency (SOCA) not beingsigned until January 2011. This contract with SOCA is a good example of thetraction we are getting with differentiated offerings like secure solutions
forour Public Sector clients. Our clients continued to award us new Outsourcing business in 2010. The growthin orders in this part of the business reflects our ongoing investment ingrowing our position as a leader in applications management over the last threeyears as well as a more general market trend towards more outsourcing. We havehad particularly good traction in the Nordics. Our investments in building long term relationships are evidenced in our dealsuccess over the last two years. Reflecting a changing market, there werefewer clients who contracted very large deals in 2010. Nevertheless, wesecured 27 deals greater than £10 million, of which 10 were greater than £20million. This compares favourably to 2009, when we had only 25 new dealsgreater than £10 million. The value of the larger deals was 13% above lastyear's level. Our success is also being reflected in the size and nature of our opportunitiespipeline. Our average pipeline through 2010 was 20% larger than in 2009. Ourinvestment in Business Consulting is proving key to helping us identify newwork. The source of the deals by sector continued to fluctuate with market trends. 2010 saw renewed demand from Financial Services and TTI clients. We continue tobenefit from having a business which is well balanced across sectors as well asgeographies.
Managing our skills and our people
Maintaining and upgrading the domain expertise of our people and ensuring wehave the right people in the right places for our clients is a keydifferentiator for us. At 31 December 2010, we had 39,284 employees (31December 2009: 38,780). Around 90% of our people are directly engaged indelivery to clients and increasing numbers of them are based in our offshorecentres. We recruited around 6,500 people across the Group in 2010, with around 1,450graduates joining Logica. France remained the most active recruiter after theoffshore centres, with gross recruitment of around 1,600 in the year on theback of strong order and revenue growth. In 2010, our recruitment in India, Morocco and the Philippines accelerated asEuropean clients continued to adopt a blended delivery approach. We expandedthe scope of activities with our remote infrastructure management productioncentre in Chennai to support clients in 10 countries. To support growth andcompensate for attrition in line with industry averages,we had around 1,600 newjoiners in our offshore locations. At the end of 2010, we had 5,800 people inthese locations (15% of group permanent headcount) - compared to 5,100 at theend of 2009. In total, these now deliver to over 135 European clients in 13countries. As our markets recover, we expect to need to recruit more people in both ouronshore and offshore locations. We will continue to enhance our capability mixand competitiveness. We continue to transform our skills mix and coststructure, balancing recruitment, training and development of our people,attrition and targeted pay increases to produce the optimum result.
Our annualised voluntary attrition was 14% at the end of 2010 (2009: 7%) although it remains below the 16% level we saw at the peak of the last cycle. The increase in attrition and modest wage inflation, which we expect to continue into 2011, will be tools we can use to help change the mix of our onshore headcount.
The Logica University has had a major refresh since 2008 and, combined with anincrease in online training, is helping our people keep their skills relevantand up to date. Progress on margin
Pricing pressure meant that we had to deliver more work for the same revenue in 2010 and so our direct costs rose to 72.2% (2009: 71.1%). The effect of annualised 2009 price reductions has lessened as we have come through 2010.
However, 2010 marked a further improvement in group overheads, benefiting from the actions implemented under the 2008 Programme for Growth. Overheads decreased to 13.0% of revenue (2009: 14.1%). The key drivers of our lower overheads have been lower real estate costs and the rationalisation and increased efficiency of our non billable functions. Our sales and marketing expense remained stable at 7.4% of revenue (2009: 7.4%).
As a result, we maintained our adjusted operating margin at 7.4%. The reduction in our exceptional costs meant that this represented a tripling of operating profit compared to 2009.
Overheads will reduce further in 2011. This, combined with improvement in grossmargin, will help Logica move its operating margin over the medium term, fromthe 7.4% we delivered in 2010 towards double digit margins.
Operating performance - continuing operations
The basis on which we are reporting revenue and operating profit was changed at the beginning of 2010. As a consequence, prior year comparatives have been restated below:
Northern and Central Europe and Sweden have been introduced as new segments toreflect the management structure put in place from the beginning of 2010. Moredetail on the countries in each segment was provided at our analyst day inMarch 2010.Outsourcing Services pro forma numbers for 2009 now reflect a refinement in ourallocation of activities between service lines, in addition to exchangemovements and disposals. These changes have resulted in a net increase of £81million in the pro forma numbers cited below.
Operating profit numbers for France in 2010 have improved in part due to a change in tax legislation which is not applied to 2009 numbers.
The sector formerly known as Industry, Distribution and Transport (IDT) has been renamed to Transport, Trade and Industrial (TTI) to better reflect the nature of our client base in that sector. There has been no change to the classification of revenue as a result of this change.
Analysis of revenue performance
Revenue by service line Growth Growth FY'10 H2'10 H2'10 FY'09 on on % Actual FY'09 Actual FY'09 H2'09 of £'m Pro £'m Pro Pro total FY'10 forma forma forma £'m £'m % % Outsourcing Services 1,601 809 1,461 1,380 10 10 43 Consulting and Professional Services 2,096 1,017 2,207 2,322 (5) (3) 57 Total 3,697 1,826 3,668 3,702 1 2 100
Full year revenue was up 1% on a pro forma basis with Outsourcing Services revenue up 10% on a pro forma basis to £1,601 million. It now represents 43% of Group revenue (2009: 37%).
The trend in Consulting and Professional Services improved through 2010, withthe full year decline halving from last year to 5% and a fourth quarter declineof only 3%. Utilisation in Consulting and Professional Services was stable ataround 80% through the second half. Within Consulting and Professional Services, we have established BusinessConsulting as a separate service line. At the end of the year, we had around3,500 employees within Business Consulting, with France, Sweden and Finland ourlargest consulting businesses. Utilisation trends have remained stable duringthe last six months of the year as we added employees to the organisationthrough the second half. Revenue by sector Growth Growth FY'10 H2'10 on on FY'09 FY'09 H2'09 FY'10 H2'10 Pro FY'09 Pro Pro % Actual Actual forma Actual forma forma of £'m £'m £'m £'m % % total Public Sector 1,133 543 1,171 1,180 (3) (5) 31 Transport, Trade and 1,023 494 993 1,005 3 3 28Industrial (TTI) Energy and Utilities 638 318 656 650 (3) (2) 17 Financial Services 596 306 539 553 11 18 16 Telecoms 307 165 309 314 (1) 6 8 Total 3,697 1,826 3,668 3,702 1 2 100
The balance of our business across sectors continued to be an asset. A moregeneral trend of growth in the commercial sectors offset slower spending in thePublic Sector. This was particularly marked in the second half of the year inour Northern European geographies with the growth rate across the commercialsectors overall doubling. This contributed to second half revenue up 2% onlast year on a pro forma basis.
Strong performance in Financial Services and TTI against weaker 2009 comparatives offset slowing in other sectors. The return to growth in Financial Services was particularly strong, up 11% compared to a 20% decline in 2009.
TTI was up 3% in the year compared to a 9% decline the previous year. Newprojects slipping into 2011 in the UK and the slowdown as a result of theextended delay in forming a new government in the Netherlands contributed tothe Public Sector underperforming our expectations. Energy and Utilities andTelecoms both showed declines against strong 2009 comparatives. Revenue by geography Growth Growth FY'10 on H2'10 on FY'09 FY'09 H2'09 FY'10 H2'10 Pro FY'09 Pro Pro % Actual Actual forma Actual forma forma of £'m £'m £'m £'m % % total France 810 395 757 791 7 8 22 Northern and Central 788 398 735 759 7 10 21Europe UK 709 342 750 750 (5) (8) 19 Sweden 566 287 544 510 4 7 15 Benelux 488 231 543 574 (10) (4) 14 International 336 173 339 318 (1) (2) 9 Total 3,697 1,826 3,668 3,702 1 2 100 France was our most consistent performer through 2010, with revenue up 7% forthe year. Growth in Northern and Central Europe and Sweden accelerated throughthe second half to end up 7% and 4% respectively. All of these segments grewabove 7% in the second half.
The Benelux experienced the most significant decline but showed a marked improvement in the second half. UK revenue was slightly weaker than anticipated due to some projects not being signed until the first quarter of 2011.
Analysis of operating performance
Adjusted operating profit by service line
FY'10 FY'09 FY'09 FY'10 Margin Pro forma Margin £'m % £'m % Outsourcing 112 7.0 102 7.0
Consulting and Professional Services 160 7.6 170
7.7 Total 272 7.4 272 7.4
Group adjusted operating margin reflected solid margins across both service lines.
Outsourcing Services adjusted operating profit was £112 million (2009: £102million). The effect from profit phasing on the back of the strong growth wehave seen in 2010 was offset by our continued focus on moving activitiesoffshore and higher efficiency through more industrialised processes and tools,resulting in an adjusted operating margin of 7.0% (2009: 7.0%). Consulting and Professional Services operating profit was £160 million (2009: £170 million). Adjusted operating margin was broadly maintained at 7.6% (2009:7.7%) despite a challenging market environment, with improvements inutilisation offsetting the continued impact of 2009 price declines.
Adjusted operating profit by geography
FY'09 FY'10 FY'09 Pro forma FY'09 FY'10 Margin Pro forma Margin Actual % £'m % £'m % £'m of total France 68 8.4 57 7.5 60 25 Northern and Central Europe 61 7.8 57 7.8 58 23UK 60 8.5 64 8.5 64 22 Sweden 38 6.7 39 7.2 37 14 Benelux 14 2.9 23 4.3 24 5International 31 9.0 32 9.2 29 11 Total 272 7.4 272 7.4 272 100
Adjusted operating profit before exceptional items and amortisation of intangibles initially recognised on acquisition was £272 million.
Adjusted operating margin was 7.4%, in line with last year. As expected, theimpact of volume and pricing reductions agreed during the first half of 2009had an impact on the first half margins, which was offset by cost reductionsfrom actions taken in 2009. The second half saw margins stable or improvingwith the exception of the Benelux. The improvement in the French operatingmargin, due mainly to a change in French tax legislation, was a positivecontributor, adding around 20 bps to Group margin.
Operating profit by geography (actual)
FY'10 FY'10 Adjusted Amortisation FY'10 FY'10 FY'10 operating of Exceptional Operating Operating profit intangibles items profit Margin £'m £'m £'m £'m % France 68 (19) - 49 6.1 Northern and Central 61 (18) - 43 5.4Europe UK 60 - - 60 8.5 Sweden 38 (21) - 17 3.0 Benelux 14 - (2) 12 2.6 International 31 (1) - 30 8.7 Total 272 (59) (2) 211 5.7 FY'09 FY'09 Adjusted Amortisation FY'09 FY'09 FY'09 operating of Exceptional Operating Operating profit intangibles items profit Margin £'m £'m £'m £'m % France 60 (29) (12) 19 2.3 Northern and Central 58 (26) (14) 18 2.5Europe 64 - (21) 43 5.7UK Sweden 37 (32) (18) (13) (2.5) Benelux 24 - (47) (23) (4.0)International 29 (2) (5) 22 7.0 Total 272 (89) (117) 66 1.8 Lower amortisation and the absence of significant exceptional charges led to athreefold increase in our operating profit to £211 million (2009 actual: £66million). Operating margin was 5.7% (2009: 1.8%).
Amortisation expense of £59 million (2009 actual: £89 million) mainly reflects the ongoing amortisation related to customer contracts. The reduction is related to the completion of amortisation of some brand names.
While we did not incur any exceptional charges for restructuring in 2010, werecorded an exceptional charge of £2 million in relation to our disposal of thepayroll business in the Benelux. This compares to exceptional charges of £117million in 2009, mainly related to restructuring incurred as part of theProgramme for Growth.
Review of continuing operations - Outsourcing Services
Outsourcing Services orders and revenue by type
Growth FY'09 FY'10 on FY'10 Orders FY'09 Orders Pro forma Pro forma £'m £'m % Applications Management (AM) 949 934 2 Infrastructure Management (IM) 702 694 1
Business Process Outsourcing (BPO) 110 184 (40)
Total Outsourcing Services 1,761 1,812 (3) Book to bill (%) 110 124 Growth FY'09 FY'10 on FY'10 Revenue FY'09 Revenue Pro forma Pro forma £'m £'m % Applications Management (AM) 823 701 17 Infrastructure Management (IM) 631 621 2
Business Process Outsourcing (BPO) 147 139 6
Total Outsourcing Services 1,601 1,461 10 Within Outsourcing Services, Applications Management (AM) continued to be thelargest component of revenue as well as the fastest growing, up 17%. BusinessProcess Outsourcing (BPO) also grew significantly, up 6%. InfrastructureManagement (IM) was broadly stable, accounting for 40% of outsourcing revenue. AM also accounted for the majority of our new orders in the first half of theyear, with orders in this part of Outsourcing Services up 2%. We continuallywork to maintain our market leading share of the European applicationsmanagement market and have identified a number of areas which we expect todrive further demand in this market, such as security management ofapplications placed on the cloud, mobile application management and globallyblended shared services combining skills from both onshore and offshoreregions. Our Outsourcing order backlog was £2.3 billion at the end of 2010, with ordersof £1.8 billion added in the year on the back of strong demand across mostgeographies. Significant contracts with Shell, the UK's Serious OrganisedCrime Agency and an important client in the Netherlands with a total value ofover £475 million have also been added since the end of 2010. The additionalsales effort we have invested in since 2008 is delivering healthy levels ofcontracted revenue in our backlog and increasing the number of opportunities inour pipeline. Book to bill was 110% (2009: 124%).
Outsourcing Services revenue by geography
Growth FY'09 FY'10 on H2'10 Pro FY'09 FY'09 FY'10 Actual forma Actual Pro Revenue Revenue Revenue Revenue forma % of £'m £'m £'m £'m % total France 349 175 294 307 19 22 Northern and Central 261 137 217 181 20 16Europe UK 377 183 392 367 (4) 24 Sweden 337 175 282 251 20 21 Benelux 84 37 86 118 (2) 5 International 193 102 190 156 2 12 Total Outsourcing Services 1,601 809 1,461 1,380 10 100
Outsourcing growth in Sweden accelerated during the second half, ending theyear up 20%. This was in line with the strong levels of growth we saw inFrance and Northern and Central Europe and more than offset declines in the UKand the Benelux. The UK was down 4% against a very strong comparative in thesecond half of 2009.
Outsourcing Services adjusted operating profit
FY'09 FY'10 Pro forma
Adjusted operating profit £'m 112 102
Adjusted operating margin % 7.0 7.0
Adjusted operating profit was £112 million. The phasing of profit recognition on the back of the strong growth we have seen in 2010 was offset by our continued focus on moving activities offshore and higher efficiency through more industrialised processes and tools, resulting in an adjusted operating margin of 7.0% (2009: 7.0%).
Review of continuing operations by geography
France Growth Growth FY'10 on FY'10 FY'09 FY'09 on H2'10 Pro FY'09 Pro FY'09 FY'10 Actual forma Actual forma Actual £'m £'m £'m £'m % % Revenue by market sector Transport, Trade and 308 148 288 300 7 3Industrial Financial Services 208 105 192 200 8 4 Other sectors 294 142 277 291 6 1 Total 810 395 757 791 7 2 Outsourcing (%) 43 39 Book to bill (%) 115 140 Adjusted operating profit 68 34 57 (£'m) Adjusted operating margin 8.4 8.7 7.5 (%) Revenue was up 7% on a pro forma basis to £810 million. Our French businesshas been the most consistent performer across Logica in 2010 growing above themarket on the back of strong client relationships. Despite a strongercomparative in the fourth quarter of 2009, revenue growth remained strongthrough the second half.
Our largest sectors, Financial Services and TTI, drove growth.
Among our smaller sectors, the fastest growing was the Public Sector, which wasup 19% driven by the rollout of tax and payroll programmes for the Ministry ofFinance. Energy and Utilities slowed on the back of a strong comparative andahead of regulatory changes which should drive revenue growth in 2011.
Outsourcing revenue grew to 43% of total revenue as we undertook new contracts in a number of sectors including in the Public Sector.
Adjusted operating profit was £68 million. Margin at 8.4% benefited from thechange in tax legislation from the beginning of 2010 which added around 110 bpsto our reported margin, as well as strong utilisation and previous cost basereductions. The business is actively recruiting to lower the level ofsubcontractors taken on to respond to rapid growth in this business in 2010. Book to bill was 115% (2009: 140%). We had a good second half order intake andhave a good pipeline for 2011, driven by the increase in outsourcing activity. Northern and Central Europe Growth Growth FY'10 on FY'10 FY'09 FY'09 on H2'10 Pro FY'09 Pro FY'09 FY'10 Actual forma Actual forma Actual £'m £'m £'m £'m % % Revenue by market sector Transport, Trade and 257 115 256 265 - (3)Industrial Public Sector 233 115 226 233 3 - Other sectors 298 168 253 261 18 14 Total 788 398 735 759 7 4 Outsourcing (%) 33 30 Book to bill (%) 114 110 Adjusted operating profit 61 35 57 (£'m) Adjusted operating margin 7.8 8.9 7.8 (%) Revenue was up 7% on a pro forma basis to £788 million with a good performanceacross most geographies. We saw an acceleration through the second half withrevenue up 10%. Finland was the best performing country, with revenue up 11% driven by anincrease from Outsourcing contracts signed in 2010. Revenue growth in oursecond largest country, Germany, was also strong, as it benefited from earlierinvestments and general strengthening across the economy. Denmark grew quicklyfrom a smaller base as a result of the Posten Norden contract signed in early2010. Despite differing patterns across clients and geographies, we saw solid revenueperformance in our two largest sectors, TTI and the Public Sector. As in ourother geographies, Financial Services recovered strongly in 2010 andparticularly so in Germany, where we were named a preferred supplier to a majorFinancial Services client. Second half growth was driven by the Telecomssector under new contracts with major clients in Finland.
Adjusted operating profit was £61 million, which resulted in an adjusted operating margin of 7.8%. Cost reductions and good utilisation offset the impact of pricing pressure in the first half.
Book to bill for the period was 114% (2009: 110%). Order growth of 11% wasdriven by new contracts across the region and improving market positioning inGermany where we signed new outsourcing contracts. This included a five yearcontract with ArcelorMittal Bremen, signed at the end of 2010. This new dealwill see Logica provide application management and infrastructure services forbusiness applications ensuring our client's business benefits from servicecontinuity and increased cost flexibility. UK Growth Growth FY'10 on FY'10 FY'09 FY'09 on H2'10 Pro FY'09 Pro FY'09 FY'10 Actual forma Actual forma Actual £'m £'m £'m £'m % % Revenue by market sector Public Sector 439 209 467 467 (6) (6) Energy and Utilities 108 50 104 104 4 4 Other sectors 162 83 179 179 (9) (9) Total 709 342 750 750 (5) (5) Outsourcing (%) 53 52 Book to bill (%) 78 100 Adjusted operating profit 60 34 64 (£'m) Adjusted operating margin 8.5 10.0 8.5 (%) Revenue in the UK business was down 5% on a pro forma basis to £709 million. This was 2% below our previous guidance and a result of the delay of contractswhich slipped into 2011 combined with weaker billing than we had expectedacross public and commercial sectors at the end of 2010. Public Sector revenue was down 6% as a result of expected weakness followingthe election. Although there was good growth in Energy and Utilities andFinancial Services, overall revenue in the commercial sectors declined. Thiswas mainly due to weakness in Telecoms against a strong 2009 comparative, whenthe sector was up 57%.
Adjusted operating profit was £60 million (2009: £64 million), resulting in anadjusted operating margin of 8.5%. We are recruiting to refresh our skills basein a stronger employment market and working to improve utilisation.
With the £157 million Serious Organised Crime Agency (SOCA) contract not being signed until early 2011, the book to bill was 78%.
We expect the UK business to be growing as we exit 2011. The recovery will besecond half weighted with the rollout of major contracts with SOCA and Shelland will be dependent on the pace of public sector spending decisions. Underpinning our confidence is an increase in demand in the commercial sectors,notably in Energy and Utilities and in Financial Services. Sweden Growth Growth FY'10 on FY'10 FY'09 FY'09 on H2'10 Pro FY'09 Pro FY'09 FY'10 Actual forma Actual forma Actual £'m £'m £'m £'m % % Revenue by market sector Transport, Trade and 252 129 231 216 9 17Industrial Public Sector 153 77 163 154 (6) (1) Other sectors 161 81 150 140 7 15 Total 566 287 544 510 4 11 Outsourcing (%) 60 52 Book to bill (%) 132 129 Adjusted operating profit 38 23 39 (£'m) Adjusted operating margin 6.7 7.9 7.2 (%) Revenue was £566 million, up 4% for the year on a pro forma basis. Revenuemomentum was second half weighted, with second half revenue up 7% on the backof a weak comparative in 2009. With the exception of the Public Sector, revenue improved in all sectors as aresult of new Outsourcing contract wins. Our contract with Posten Norden droveTTI revenue in the second half. We began to deliver to Skandia in theFinancial Services sector, while contracts with large clients like TeliaSoneradrove growth in Telecoms. Activity in the Public Sector remained slow as aresult of reduced spending and the completion of the final stage of a contractin the education sector. Outsourcing will continue to drive growth in 2011 and we have been recruitingto help resource these outsourcing deals. Outsourcing now represents 60% ofrevenue with strong growth in 2010 due to a number of new contracts includingPosten Norden. Adjusted operating profit was £38 million. The decline in adjusted operatingmargin to 6.7% was due to a weaker first half margin on the back of pricingreductions agreed in 2009 and the phasing of profit as we rolled out newcontracts in the second half. Improved utilisation rates and realignment ofour cost base as we have come through 2010 have started to offset this.
Book to bill for the year was 132% (2009: 129%). As market sentiment has improved, we have been successful in winning new business in a competitive market. We have good order backlog for 2011, helped by new contract wins at Lantm¤nen, Scan and Posten Norden in 2010.
Benelux Growth Growth FY'10 FY'10 on on H2'10 FY'09 FY'09 FY'09 FY'09 FY'10 Actual Pro forma Actual Pro forma Actual £'m £'m £'m £'m % % Revenue by market sector Public Sector 161 72 190 200 (15) (19) Financial Services 146 73 137 145 7 1 Transport, Trade and Industrial 89 42 99 107 (10) (17) Other sectors 92 44 117 122 (21) (25) Total 488 231 543 574 (10) (15) Outsourcing (%) 17 16 Book to bill (%) 107 93
Adjusted operating profit (£'m) 14 2 23 Adjusted operating margin (%) 2.9 0.9 4.3
Revenue was down 10% on a pro forma basis to £488 million. As anticipated therate of revenue decline continued to slow during the second half. Revenue wasdown 4% in the second half, compared to a 15% drop in the first half. Stablepricing levels and a continuing positive trend in Financial Services, whererevenue was up 7% versus a decline of 31% in 2009 drove the second halfimprovement. Performance of Public Sector in the second half has been slowerthan we anticipated due to the delay in forming a Government. OutsideFinancial Services, clients remain cautious, focused on cost cutting withinvestment decisions being carefully considered. Adjusted operating profit was £14 million (2009: £23 million). Adjustedoperating margin was 2.9% (2009: 4.3%) and included a £5 million charge relatedto projects in the second half. Utilisation was around 75%, compared to thelow 70s at the end of 2009. Following a change in management, we have put inplace plans for driving further efficiencies through the organisation. The most significant indication of the improving market in the Benelux was abook to bill of 107% (2009: 93%). Orders in the second half were up on 2009,with increases across most sectors. Wins since the end of 2010 include an €80million, seven year win with an important client in the Netherlands fortransition of their BPO and IT platform. International Growth Growth FY'10 on FY'10 FY'09 FY'09 on H2'10 Pro FY'09 Pro FY'09 FY'10 Actual forma Actual forma Actual £'m £'m £'m £'m % %Revenue by area Iberia 101 51 103 108 (2) (6) Rest of World 235 122 236 210 - 12 Total 336 173 339 318 (1) 6 Growth Growth FY'10 on FY'10 FY'09 FY'09 on H2'10 Pro FY'09 Pro FY'09 FY'10 Actual forma Actual forma Actual £'m £'m £'m £'m % % Revenue by market sector Transport, Trade and 29 15 28 26 4 12Industrial Energy and Utilities 228 118 239 224 (5) 2 Financial Services 24 14 23 24 4 - Other sectors 55 26 49 44 12 25 Total 336 173 339 318 (1) 6 Outsourcing (%) 57 56 Book to bill (%) 94 106 Adjusted operating profit 31 19 32 (£'m) Adjusted operating margin 9.0 10.7 9.2 (%) Revenue was down 1% on a pro forma basis to £336 million. On a revenue basis,Australia has become the largest country in the International cluster favouredby exchange rate movement and now represents 33% of the total (2009: 31%).Iberian revenue accounts for 30% of the total (2009: 34%). Iberian revenue was down 2% to £101 million against a strong 2009 comparativeand some slowing of discretionary work in a difficult economic environment
inPortugal. In the Rest of World (Australia, Brazil, USA, Middle East, Asia Pacific)revenue remained stable at £235 million. North America and Middle East werethe stronger performers. The Energy and Utilities sector saw healthy growth inNorth America on the back of strong European client relationships while PublicSector projects increased significantly in the Middle East. Revenue in Braziland Asia was down following a strong performance in 2009.
Adjusted operating profit was £31 million, resulting in an adjusted operating margin of 9.0%. We saw continued good margin performance in Australia. The slight decline in adjusted operating margin was due to a reduction in discretionary work and some project overruns in the Brazilian business. Utilisation remained strong and stable during the second half of the year.
Book to bill at 94% (2009: 106%) was mainly the reflection of projects slippinginto 2011. Financial position Summary cash flow FY'10 FY'09 £'m £'m Adjusted operating profit 272 272
Depreciation and amortisation of intangibles not recognised on 58
56acquisition Movement in working capital (56) 26 Other non-cash movements (4) -
Net cash inflow from continuing operations 270
354 Cash conversion 99% 130% Cash outflow related to restructuring under the Programme for (37) (67)Growth Cash outflow related to losses on business disposed of/ held for (5) (6)disposal Net financing cost paid (16) (27) Income tax paid (51) (19) Capex less disposals of property, plant & equipment and intangible (74) (57)assets
Impact of acquisitions and disposals (6)
(47)
Dividends paid to shareholders (67)
(26)
Exchange differences and other (3)
42 Opening net debt (291) (438) Closing net debt (280) (291)
The net cash inflow from trading operations was £270 million (2009 actual: £354million), leading to a cash conversion ratio of 99% (2009 actual: 130%), and avery strong cash conversion during the second half of the year.
One off items included an exceptional cash outflow of £37 million (2009 actual: £67 million), associated with the Programme for Growth costs expensed in 2009.
Net finance cost paid was below last year at £16 million (2009 actual: £27 million), reflecting a lower interest rate environment in 2010.
Payment in respect of dividends was £67 million (2009: £26 million) an increase on our 2009 outflows following our policy of increasing dividends to shareholders in 2010.
Logica has debt facilities of £712 million. Our facilities extending beyond 2012 are £536 million.
Group net debt at 31 December 2010 was £280 million (2009 actual: £291 million), leading to net debt/EBITDA of 0.8x in line with our 2010 guidance.
Other information TaxationThe effective tax rate, before exceptional items and amortisation of intangibleassets initially recognised on acquisition, was 23% (2009: 20%). The total taxcharge was £41 million (2009: £3 million). The effective tax rate for 2011 isexpected to be around 23%.
The overall tax rate for the period was 21% (2009: 6%) due to the absence of restructuring charges in 2010.
Disposals
The consideration for the disposal of our lower margin Dutch payroll processing business was £3 million in 2010.
Returns to shareholders
The Board's policy is to ensure that the progress we have made in improving theperformance of the business over the last three years delivers a real return toshareholders which flows through our dividend policy, while continuing toprovide sufficient funds to invest in future growth. As a result, the Boardhas recommended a steady increase in the dividend payout ratio from 2009 levelsof 28% to at least 40% by 2012. The directors are proposing a final dividend of 2.3p (2009: 2.3p) to be paid on5 May 2011 to eligible shareholders on the register at the close of business on8 April 2011. This would take the full year dividend to 4.2p (2009: 3.3p),which represents a payout of around a third of adjusted EPS of 12.3p and a 27%increase in the full year dividend over last year.
Our return on capital (ROCE) was 9%, in line with last year and our cost of capital.
Next financial calendar dates
Logica's next scheduled communications to the market are:
Wednesday 4 May 2011 Q1 2011 Interim Management Statement and AGMFriday 5 August 2011 H1 2011 Interim results Notes:
With the exception of adjusted operating margin percentages, all numbers in this release have been rounded to whole numbers. Adjusted operating margin reflects the adjusted 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 forward contracts,the purchase of property, plant, equipment, intangibles and restructuring andintegration activities.
Book to bill percentage is a measure of the level of orders relative to revenue in the period.
Unless otherwise stated, the comparatives in this release relate to pro forma results for 2009 which:
reflect average 2010 exchange rates by retranslating prior period actual numbers at average 2010 exchange rates. This decreased FY'09 revenue by £22 million and had no impact on adjusted operating profit.
are adjusted to include the disposals that took place during 2009 by adjustingthe actual prior period numbers for the relevant period owned. This decreasedFY'09 revenue by £12 million and had no impact on adjusted operating profit.
includes a number of changes to the scope of outsourcing activities in some of our geographies.
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 '09 Pro Pro FY '09 forma Actual FY '10 H2 '10 forma Actual growth growth £'m £'m £'m £'m % % Operating profit 211 118 66 220% Add back impact of: Exceptional items 2 2 117
Amortisation of acquisition related 27 89
intangibles 59 Adjusted operating profit 272 147 272 272 0% 0%
Adjusted earnings per share is based on net profit attributable to ordinary shareholders, excluding the following items, whenever such items occur:
discontinued operations
exceptional items
mark-to-market gains or losses on financial assets and financial liabilities designated at fair value through profit or loss
amortisation of intangible assets initially recognised at fair value in a business combination
tax on the items above
Exchange rates used are as follows:
FY '10 H1 '10 H2 '10 FY '09 H1 '09 H2 '09 £1 / € Average 1.17 1.15 1.18 1.12 1.12 1.12
End of period 1.17 1.22 1.17 1.13 1.17 1.13
£1 / SEK Average 11.12 11.26 10.99 11.91 12.16 11.66
End of period 10.53 11.64 10.53 11.53 12.76 11.53
Consolidated statement of comprehensive income
For the year ended 31 December 2010
2010 2009 Note £'m £'m Revenue 2 3,696.8 3,701.6 Net operating costs (3,486.2) (3,635.3) Operating profit 210.6 66.3 Analysed as:
Operating profit before exceptional items 212.3
183.8 Exceptional items 3 (1.7) (117.5) Operating profit 2,4 210.6 66.3 Finance costs (27.2) (35.8) Finance income 8.9 11.6
Share of post-tax profits from associates 0.6
0.5 Profit before tax 192.9 42.6 Taxation 6 (40.8) (2.5) Net profit for the year 152.1 40.1
Other comprehensive income/(expense) Exchange differences on translation of foreign operations 11.4
(93.4)
Interest rate swaps fair value difference (0.1)
(0.2)
Actuarial losses on defined benefit plans (3.1)
(58.9)
Tax on items taken directly to equity 0.6
15.8
Other comprehensive income/(expense) for the period, net 8.8
(136.7)of tax
Total comprehensive income/(expense) for the period 160.9
(96.6) Profit attributable to: Owners of the parent 152.1 40.1 152.1 40.1
Total comprehensive income/(expense) attributable to:
Owners of the parent 160.9 (95.5) Non-controlling interests - (1.1) 160.9 (96.6) Earnings per share p / share p / share - Basic 8 9.6 2.5 - Diluted 8 9.4 2.5
Details of dividends paid and proposed are provided in Note 7.
Consolidated statement of financial position
31 December 2010 2010 2009 Note £'m £'m Non-current assets Goodwill 1,906.5 1,883.6 Other intangible assets 200.7 243.4 Property, plant and equipment 138.5 132.8 Investments in associates 2.7 2.6 Financial assets 12.5 12.4 Retirement benefit assets 38.7 27.4 Deferred tax assets 70.3 74.8 2,369.9 2,377.0 Current assets Inventories 1.0 1.1 Trade and other receivables 1,252.3 1,130.1 Current tax assets 11.4 3.1
Assets classified as held-for-sale 15 -
1.5 Cash and cash equivalents 9 56.4 139.3 1,321.1 1,275.1 Current liabilities Other borrowings 10 (204.3) (247.9) Trade and other payables (1,062.4) (992.7) Current tax liabilities (66.6) (58.5) Provisions 11 (29.4) (68.3) (1,362.7) (1,367.4) Net current liabilities (41.6) (92.3)
Total assets less current liabilities 2,328.3
2,284.7 Non-current liabilities Borrowings 10 (132.3) (182.0)
Retirement benefit obligations (95.2)
(83.6) Deferred tax liabilities (61.1) (75.3) Provisions 11 (37.1) (45.3)
Other non-current liabilities (1.4)
(1.2) (327.1) (387.4) Net assets 2,001.2 1,897.3 Equity Share capital 12 160.2 160.0 Share premium account 13 1,107.4 1,107.1 Reserves 733.5 630.1 Total shareholders' equity 2,001.1 1,897.2 Non-controlling interests 0.1 0.1 Total equity 2,001.2 1,897.3
Consolidated statement of cash flows
For the year ended 31 December 2010
2010 2009 Note £'m £'m
Cash flows from operating activities Net cash inflow from trading operations
270.1 353.5
Cash outflow related to restructuring and integration (36.8) (67.4)activities
Cash outflow related to business disposed of/held for disposal (4.8) (5.9)
Cash generated from operations 14 228.5 280.2 Finance costs paid (20.1) (33.5) Income tax paid (50.9) (19.4) Net cash inflow from operating activities 157.5 227.3
Cash flows from investing activities
Finance income received 3.8 6.2 Dividends received from associates
0.4 0.7
Proceeds on disposal of property, plant and equipment
0.2 3.0
Purchases of property, plant and equipment
(45.8) (34.4)
Expenditure on intangible assets
(28.8) (24.8)
Purchase of non-controlling interests
- (47.8)
Acquisition of subsidiaries and other businesses, net of cash (8.9) -acquired Proceeds on disposal of subsidiaries and other businesses, net 3.2 0.7of cash disposed Net cash outflow from investing activities (75.9) (96.4)
Cash flows from financing activities Proceeds from issue of shares allotted under share plans
0.4 -
Refund of expenses related to shares issued in prior years
5.6 -
Proceeds from bank borrowings
230.9 20.3
Repayments of bank borrowings
(399.8) (134.0)
Proceeds from private placement debt notes 88.9 - Repayments of finance leases (3.4) (3.1) Repayments of other borrowings (0.7) (1.6) Net proceeds from forward contracts
(17.7) 6.2
Dividends paid to the Company's shareholders
(66.8) (26.0)
Net cash outflow from financing activities (162.6) (138.2) Net decrease in cash, cash equivalents and bank overdrafts (81.0) (7.3) Cash, cash equivalents and bank overdrafts at the beginning of 9 110.1 121.5the year
Net decrease in cash, cash equivalents and bank overdrafts 9 (81.0) (7.3)
Effect of foreign exchange rates 9
1.5 (4.1)
Cash, cash equivalents and bank overdrafts at the end of the 30.6 110.1year
Consolidated statement of changes in equity
For the year ended 31 December 2010
Note Total Share Share Retained Other
Shareholder's Non-controlling Total
capital premium earnings reserves Equity interest Equity £'m £'m £'m £'m £'m £'m £'m At 1 January 160.0 1,107.1 (331.1) 961.2 1,897.2 0.1 1,897.32010 Net profit for - - 152.1 - 152.1 - 152.1the year Other comprehensive income/ (expense): Actuarial - - (3.1) - (3.1) - (3.1)losses Tax on items - - 0.6 - 0.6 - 0.6taken to equity Interest rate - - (0.1) - (0.1) - (0.1)swaps fair value difference Exchange - - - 11.4 11.4 - 11.4differences Total - - 149.5 11.4 160.9 - 160.9comprehensive income Transactions with owners: Dividends paid 7 - - (66.8) - (66.8) - (66.8) Share-based - - 9.4 - 9.4 - 9.4payment Shares allotted 0.2 0.3 (0.1) - 0.4 - 0.4under share plans Total 0.2 0.3 (57.5) - (57.0) - (57.0)transactions with owners At 31 December 160.2 1,107.4 (239.1) 972.6 2,001.1 0.1 2,001.22010 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 - - 72.7 (168.2) (95.5) (1.1) (96.6)comprehensive income/ (expense) Transactions with owners: Dividends paid 7 - - (26.0) - (26.0) - (26.0) Share-based - - 7.8 - 7.8 - 7.8payment Shares allotted 0.2 - (0.2) - - - -under share plans Non-controlling - - (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 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 2010. 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 on a going concernbasis, and under the historical cost convention with the exception of forwardcontracts, interest rate swaps and retirement benefit scheme assets which aremeasured at fair value.
This preliminary announcement was approved by the Board of Directors on 22February 2011. 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 2010,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 8 March 2011 and subsequently delivered to the Registrar of Companies afterthe Annual General Meeting on 4 May 2011. The statutory accounts for the yearended 31 December 2009, which were prepared under IFRS, have been filed withthe Registrar of Companies. The auditors' report on those accounts wasunqualified and did not contain a statement under section 498(2) and 498(3)
theAct.
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 2009, 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 wereeffective during the year ended 31 December 2010, but had no material impact onthe Group:
Amendments issued as part of annual improvements to IFRSs (April 2009);
Amendments to IFRS 2 'Group cash-settled share-based payment transactions', effective on or after 1 January 2010;
IFRIC 12, 'Service concession arrangements' effective on or after 30 March2009. A service concession arrangement is an arrangement where a government orpublic sector body contracts with a private operator to develop, operate andmaintain the grantor's infrastructure assets. The grantor controls orregulates what services the operator provides, the assets used and pricescharged. The assets will also revert to the grantor at the end of the term. Although Logica has outsourcing contracts which involve public sectororganisations these typically support back office processes and thus are notconcession arrangements. This interpretation has not had a material impact onthe Group;
IFRIC 16, 'Hedges of a net investment in a foreign operation';
IFRIC 18, 'Transfers of Assets from Customers'; effective for transfers ofassets received on or after 1 July 2009. The interpretation clarifies therequirements of IFRS for agreements in which an entity receives from a customeran item of property, plant and equipment that the entity must then use eitherto connect the customer to a network or to provide the customer with ongoingaccess to a supply of goods or services (such as a supply of electricity, gasor water). In some cases, the entity receives cash from a customer that mustbe used only to acquire or construct the item of property, plant and equipmentin order to connect the customer to a network or provide the customer withongoing access to a supply of goods or services (or to do both). Although someoutsourcing contracts may involve the transfer of computing equipment toLogica, the control of the asset usually remains with the customer and as suchthis interpretation has not had, nor is expected to have a material impact onthe Group;IFRIC 17 'Distributions of non-cash assets to owners', effective for periodsbeginning on or after 1 July 2009, clarifies the accounting where assets otherthan cash are distributed to shareholders;
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;
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 use purchased options as a hedging instrument;
Amendments to IFRS 1 'Additional Exemptions for First-time Adopters', effective on or after 1 January 2010.
Accounting policies and basis of preparation (continued)
(b) The following standards, interpretations, and amendments to existing standards are not yet effective and have not been early adopted by the Group:
Amendment to IAS 32 'Classification of Rights Issues', effective for financial years beginning on or after 1 February 2010;
IAS 24 R 'Related Party Disclosures', effective for financial years beginning on or after 1 January 2011;
Amendment to IFRIC 14 'Prepayments of a Minimum Funding Requirement', effective for financial years beginning on or after 1 January 2011;
Amendment to IFRS 1 'Limited exemptions from Comparative IFRS 7 Disclosures for First-time Adopters', effective for financial years beginning on or after 1 July 2010;
IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments', effective for financial years beginning on or after 1 July 2010.
(c) 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:
Improvements to IFRSs issued as part of annual improvements to IFRSs (May 2010);
Amendments to IFRS 7 Financial Instruments: Disclosures (issued 7 October 2010), effective on or after 1 July 2011;
IFRS 9 'Financial Instruments', effective on or after 1 January 2013;
Amendments to IAS 12 - Deferred Tax: Recovery of underlying assets, effective on or after 1 January 2012;
Amendments to IFRS1 - Severe Hyperinflation and the removal of fixed dates for first-time adopters.
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. During the current year there has been a change in how the operating segmentsare organised and in the internal management reporting that the ExecutiveCommittee uses to review the performance of the Group. During the current yearthe Swedish business is reported as a separate operating segment, which hasresulted in reclassification of £510.4 million of revenue, £13.0 million ofoperating loss and £36.8 million of adjusted operating profit (Note 4) relatingto financial year ended 31 December 2009 from the Nordics segment to the Swedensegment. Also, the German, Switzerland, and the Central and Eastern Europebusinesses were consolidated in a newly created the Northern and Central Europesegment along with rest of the Nordics segment, which has resulted inreclassification of £236.9 million of revenue, £5.0 million of operating profitand £11.3 million of adjusted operating profit (Note 4) relating to financialyear ended 31 December 2009 from the International segment to the Northern
andCentral Europe segment. At 31 December 2010, Logica is organised into six operating segments based onthe location of assets. Segment revenue and profit after tax are disclosedbelow: Revenue Profit 2010 2009* 2010 2009 * £'m £'m £'m £'m France 810.0 790.8 49.2 18.5 Northern and Central Europe 787.8 758.5 42.6 18.7 United Kingdom 709.4 750.4 60.2 42.6 Sweden 565.9 510.4 16.8 (13.0) Benelux 488.0 573.5 12.5 (22.9) International 335.7 318.0 29.3 22.4 Revenue and operating profit 3,696.8 3,701.6 210.6 66.3 Finance costs (27.2) (35.8) Finance income 8.9 11.6 Share of post-tax profits from associates 0.6 0.5 Taxation (40.8) (2.5) Profit after tax 152.1 40.1
*2009 comparatives have been rearranged for current year presentation of operating segments.
The share of post-tax profits from associates in the years ended 31 December 2010 and 2009 was attributable to the Benelux and the Northern and Central Europe segments.
Exceptional items
The exceptional items recognised within operating profit were as follows:
2010 2009 £'m £'m Restructuring costs - (95.1)
Business held for disposal (Note 15) -
(18.9)
Disposal of businesses (Note 15) (1.7)
(3.5) (1.7) (117.5) During the year ended 31 December 2010, the Group incurred no expenses relatingto the restructuring of the business (2009: £95.1 million). The restructuringcost in prior year comprised costs associated with the closure of offices inthe UK and France, and redundancy of staff across the Group.
This year, the Group completed the disposal of its HR Payroll business in the Netherlands. The disposal generated a net loss of £1.7 million (Note 15).
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. 2010 2009 £'m £'m Operating profit 210.6 66.3 Exceptional items (Note 3) 1.7 117.5 Amortisation of intangible assets initially recognised on acquisition 59.6 88.5 Adjusted operating profit 271.9 272.3 Adjusted operating profit/(loss) analysis per operating segment was as follows: 2010 Operating Exceptional Amortisation Adjusted Profit items of intangibles operating * profit £'m £'m £'m £'m France 49.2 - 19.0 68.2 Northern and Central 42.6 - 18.5 61.1Europe United Kingdom 60.2 - - 60.2 Sweden 16.8 - 21.1 37.9 Benelux 12.5 1.7 - 14.2 International 29.3 - 1.0 30.3 210.6 1.7 59.6 271.9 2009** Operating Exceptional Amortisation Adjusted Profit/ items of operating (loss) intangibles* profit £'m £'m £'m £'m France 18.5 12.1 28.9 59.5 Northern and Central 18.7 13.7 26.4 58.8Europe United Kingdom 42.6 21.5 - 64.1 Sweden (13.0) 17.8 32.0 36.8 Benelux (22.9) 47.0 - 24.1 International 22.4 5.4 1.2 29.0 66.3 117.5 88.5 272.3
* Amortisation of intangible assets initially recognised on acquisition.
**2009 comparatives have been rearranged for current year presentation ofoperating segments. Employees Year end Average 2010 2009* 2010 2009* Number Number Number Number France 9,215 8,882 8,982 8,964
Northern and Central Europe 6,997 6,850 6,961
6,940 United Kingdom 5,448 5,365 5,407 5,388 Sweden 5,256 5,153 5,222 5,260 Benelux 4,901 5,490 5,200 5,872 International 7,467 7,040 7,191 7,077 39,284 38,780 38,963 39,501
*2009 comparatives have been rearranged for current year presentation of operating segments.
The employee expense for the year amounted to:
2010 2009 £'m £'m Salaries and short-term employee benefits (including bonus) 1,617.3 1,638.2 Social security costs 310.7 313.5 Pension costs 143.2 135.5 Share-based payments 12.1 9.5 2,083.3 2,096.7 Taxation 2010 2009 £'m £'m Current tax: UK corporation tax 15.7 15.7 Overseas tax 34.5 25.5 50.2 41.2 Deferred tax: UK corporation tax (1.2) (1.4) Overseas tax (8.2) (37.3) (9.4) (38.7) 40.8 2.5 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 23% (2009: 20.0%), of which acharge of £14.5 million (2009: £20.6 million) related to the United Kingdom.The effective tax rate for 2010 was higher than 2009 due to the one-offsatisfactory closure of a number of outstanding prior year claims in 2009.
The effective tax rate on exceptional items was 23.5% (2009: 18.3%) and the effective tax rate on amortisation of intangible assets initially recognised on acquisition was 28.9% (2009: 28.9%).
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. 2010 2009 £'m £'m Profit before tax 192.9 42.6 Less: share of post-tax profits from associates
(0.6) (0.5)
Profit before tax excluding share of post-tax profits from associates 192.3 42.1 Tax at the UK corporation tax rate of 28% (2009: 28%)
53.8 11.8
Adjustments in respect of previous years
(12.3) 0.2
Adjustment for foreign tax rates 11.8 5.6 Tax loss utilisation (7.1) (10.0) Income not taxable (16.5) (13.1) Deferred tax assets not recognised 11.1 8.0 Tax charge 40.8 2.5
The current tax related to exceptional items for the year ended 31 December 2010 was a tax credit of £0.4 million (2009: £21.5 million).
Dividends The Directors are proposing a final dividend in respect of the year ended 31December 2010 of 2.3 pence per share, which would reduce shareholders' funds byapproximately £36.6 million. The proposed dividend is subject to approval atthe AGM on 4 May 2011 and has not been recognised as a liability in thesefinancial statements. The final dividend will be paid on 5 May 2011 toshareholders listed on the share register on 8 April 2011. The amounts recognised as distributions to equity holders were as follows:
2010 2009 2010 2009 p / share p / share £'m £'m
Interim dividend, relating to 2010 / 2009 1.90 1.00
30.3 16.5
Final dividend, relating to 2009 / 2008 2.30 0.60
36.5 9.5 4.20 1.60 66.8 26.0
Dividends payable to employee share ownership trusts are excluded from the amounts recognised as distributions in the table above.
Earnings per share 2010 Weighted average Earnings Earnings number per of shares Share Earnings per share £'m million pence Profit for the year 152.1
Earnings attributable to ordinary shareholders 152.1 1,589.4
9.6 Basic EPS 152.1 1,589.4 9.6
Effect of share options and share awards - 35.7
(0.2) Diluted EPS 152.1 1,625.1 9.4 Adjusted earnings per share
Earnings attributable to ordinary shareholders 152.1 1,589.4
9.6 Add back: Exceptional items, net of tax 1.3 - -
Amortisation of intangible assets initially 42.4 -
2.7recognised on acquisition, net of tax Basic adjusted EPS 195.8 1,589.4 12.3
Effect of share options and share awards - 35.7
(0.2) Diluted adjusted EPS 195.8 1,625.1 12.1 2009 Weighted average Earnings 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
All operations as at 31 December 2010 and 2009 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.
Reconciliation of movements in net debt
At Other At 1 non-cash Exchange 31 January Cash movements differences December 2010 flows 2010 £'m £'m £'m £'m £'m Cash and cash 139.3 (84.3) - 1.4 56.4equivalents Bank overdrafts (29.2) 3.3 - 0.1 (25.8) 110.1 (81.0) 1.5 30.6 Finance leases (6.2) 3.4 (1.3) (0.1) (4.2) Bank loans (392.2) 168.9 (2.7) 9.7 (216.3) Private placement debt - (88.9) (0.7) 0.9 (88.7)notes Other loans (2.3) 0.7 - - (1.6) Net debt (290.6) 3.1 (4.7) 12.0 (280.2) Borrowings 2010 2009 £'m £'m Current Bank overdrafts 25.8 29.2 Bank loans 175.2 215.0 Finance lease obligations 2.7 3.0 Other borrowings 0.6 0.7 204.3 247.9 Presented as: Other borrowings 204.3 247.9 204.3 247.9 Non-current Bank loans 41.1 177.2
Private placement debt notes 88.7
- Finance lease obligations 1.5 3.2 Other borrowings 1.0 1.6 132.3 182.0 Bank loans
At 31 December 2010, the Group had the following unsecured principal debt 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. At 31 December 2010, €205 million (£175.2 million) was drawn down under the facility (2009: £181.4million) and paid interest at an average rate of 2.67% (2009: 4.65%).
a £100 million receivables facility signed on 22 July 2009. The facility matures on 22 July 2015 and was undrawn at both 31 December 2010 and 31 December 2009.
a €50 million bilateral term loan signed in July 2009. The term loan matures26 January 2014. The term loan was available from 10th September 2010, and wasfully drawn at 31 December 2010.
a €25 million bilateral revolving credit facility maturing on 21 December 2013. The facility was undrawn at 31 December 2010 and 31 December 2009.
a €25 million bilateral revolving credit facility signed 13 August 2010. Thefacility reduces in annual increments from 1 August 2013, with a final maturityof 31 July 2016. The facility was undrawn at 31 December 2010.a €56.2 million (£48.0 million) private placement signed on 21 April 2010.Tranche A €18.7 million (£16.0 million) matures on 21 April 2015 and paysinterest at 4.5175%, Tranche B €18.7 million (£16.0 million) matures on 21April 2016 and pays interest at 4.85% and Tranche C €18.7 million (£16.0million) matures on 21 April 2017 and pays interest at 5.2075%.
a £40 million private placement signed on 25 November 2010. The debt pays interest at 5.26% and matures on 25 November 2020.
The obligations of the borrowers listed above are guaranteed by the principal UK subsidiary, Logica UK Limited.
Provisions Vacant properties Restructuring Other Total £'m £'m £'m £'m At 1 January 2010 46.8 45.7 21.1 113.6 Charged in the year 2.5 - 3.8 6.3 Utilised in the year (18.2) (29.6) (6.5) (54.3) Unused amounts reversed (0.8) - (0.1) (0.9) Unwinding of discount 1.7 - - 1.7 Exchange differences (0.1) 0.3 (0.1) 0.1 At 31 December 2010 31.9 16.4 18.2 66.5 Analysed as: Current liabilities 29.4 Non-current liabilities 37.1 66.5 Vacant properties
At 31 December 2010, 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 2010, non-current vacant property provisionsamounted to £23.4 million (2009: £30.8 million) of which £17.4 million (2009: £22.9 million) was payable within five years and the balance thereafter.
Restructuring
At 31 December 2010, the restructuring provision mainly related to therestructuring of the businesses following the outcome of the Group's businessreview announced on 22 April 2008. The restructuring programme comprisedproperty rationalisation, a reduction in headcount and other measures to reducethe cost base. Where appropriate, provisions arising from the propertyrationalisation are categorised as vacant property. At 31 December 2010, £15.5million of the restructuring provision was payable within one year, with theremaining balance payable between two and five years.
Other
At 31 December 2010, the other provisions related to the value of legal claimsand business disposal provisions. At 31 December 2010, £5.4 million of theother provision was payable within one year, with the remaining balance payablebetween two and five years. Share Capital 2010 2009 Allotted, called-up and fully paid Number £'m Number £'m At 1 January 1,600,615,806 160.0 1,598,359,521 159.8 Allotted under share plans 1,325,689 0.2 2,256,285 0.2 At 31 December 1,601,941,495 160.2 1,600,615,806 160.0 The Company has one class of issued share capital, comprising ordinary sharesof 10p each. Subject to the Company's Articles of Association and applicablelaw, the Company's ordinary shares confer on the holder: the right to receivenotice of and vote at general meetings of the Company; the right to receive anysurplus assets on a winding-up of the Company; and an entitlement to receiveany dividend declared on ordinary shares. Share premium 2010 2009 £'m £'m At 1 January 1,107.1 1,101.5
Premium on shares allotted under share plans 0.3
- Stamp duty refund - 5.6 At 31 December 1,107.4 1,107.1
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
2010 2009 £'m £'m Operating profit from operations 210.6 66.3 Adjustments for: Share-based payment expense 12.1 9.5 Depreciation of property, plant and equipment
42.7 43.7
Loss on disposal of non-current assets
2.5 0.3
Loss on sale of subsidiaries and disposed of/held-for-sale 1.7 16.7businesses Amortisation of intangible assets
74.9 101.2
Non-cash element of expense for defined benefit plans (7.1) (8.2) 126.8 163.2 Net movements in provisions (52.7) 25.4
Movements in working capital:
Financial assets (0.1) 0.9 Inventories 0.1 (0.3) Trade and other receivables (116.1) 143.5 Trade and other payables 59.9 (118.8) (56.2) 25.3 Cash generated from operations
228.5 280.2
Add back: Cash outflow related to restructuring and integration 36.8 67.4activities Add back: Cash outflow related to business disposed of/held for 4.8 5.9disposal Net cash inflow from trading operations 270.1 353.5
Assets classified as held-for-sale and disposed of
At 31 December 2009 the Board of Directors had decided to sell the Group's payroll processing division in the Netherlands. The sale of the business completed on 16 July 2010 for £3.2 million leading to a loss on disposal of £ 1.7 million. No other businesses have been disposed of during the year.
The disposal does not match the criteria of IFRS 5 'Non-current assetsheld-for-sale and discontinued operations' as the disposal does not represent aseparate major line of business or geographical area of operations and hencehas not been treated as a discontinued operation. Acquisitions During the year the Group has completed two minor acquisitions of businesses inSweden and Denmark. These acquisitions were in connection with outsourcingcontract wins. The acquisitions have involved taking over people and in somecases also certain fixed assets. The Group has invested £9.1 million(including £0.2 million deferred consideration) to acquire these businesses andrecognised goodwill of £6.8 million. Contingent liabilities The size, structure and geographic spread of the Group and its activitiesnaturally exposes it to potential scrutiny and possible legal claims includingtax and 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. In2009, the Group received a €46 million, which is net of €13 million tax, VATclaim from the French tax authorities. The claim relates to the VAT treatmentof goods exported from France during the years 2004-2006. The Group hascarefully analysed these claims and obtained external experts' advice, as aresult of which it considers that they are without merit. The Group is robustlycontesting these claims through the appropriate channels albeit this isexpected 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 €1.17 to £1 (2009: €1.12 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 pound sterling figures to euros at the closing rate of €1.17 to £1 (2009: €1.13 to £1).
Euro translation of consolidated statement of comprehensive income
For the year ended 31 December 2010
2010 2009 €'m €'m Revenue 4,325.3 4,145.8 Net operating costs (4,078.9) (4,071.5) Operating profit 246.4 74.3 Analysed as:
Operating profit before exceptional items 248.4
205.9 Exceptional items (2.0) (131.6) Operating profit 246.4 74.3 Finance costs (31.8) (40.1) Finance income 10.4 12.9
Share of post-tax profits from associates 0.7
0.6 Profit before tax 225.7 47.7 Taxation (47.7) (2.8) Net profit for the year 178.0 44.9
Other comprehensive income/(expense) Exchange differences on translation of foreign operations 13.3
(104.6)
Interest rate swaps fair value difference (0.1)
(0.2)
Actuarial losses on defined benefit plans (3.6)
(66.0)
Tax on items taken directly to equity 0.7
17.7
Other comprehensive income/(expense) for the period, net 10.3
(153.1)of tax
Total comprehensive income/(expense) for the period 188.3
(108.2) Profit attributable to: Owners of the parent 178.0 44.9 178.0 44.9
Total comprehensive income/(expense) attributable to:
Owners of the parent 188.3 (107.0) Non-controlling interests - (1.2) 188.3 (108.2) Earnings per share cents/ cents/ share share - Basic 11.2 2.8 - Diluted 11.0 2.8
Euro translation of consolidated statement of financial position
31 December 2010
See page 34 for basis of translation.
2010 2009 €'m €'m Non-current assets Goodwill 2,230.6 2,128.5 Other intangible assets 234.8 275.0 Property, plant and equipment 162.0 150.1 Investments in associates 3.2 2.9 Financial assets 14.6 14.0 Retirement benefit assets 45.3 31.0 Deferred tax assets 82.3 84.5 2,772.8 2,686.0 Current assets Inventories 1.2 1.2 Trade and other receivables 1,465.2 1,277.1 Current tax assets 13.3 3.5
Assets classified as held-for-sale -
1.7 Cash and cash equivalents 66.0 157.4 1,545.7 1,440.9 Current liabilities Other borrowings (239.1) (280.1) Trade and other payables (1,243.0) (1,121.7) Current tax liabilities (77.9) (66.1) Provisions (34.4) (77.2) (1,594.4) (1,545.1) Net current liabilities (48.7) (104.2)
Total assets less current liabilities 2,724.1
2,581.8 Non-current liabilities Borrowings (154.8) (205.7)
Retirement benefit obligations (111.4)
(94.5) Deferred tax liabilities (71.5) (85.1) Provisions (43.4) (51.2)
Other non-current liabilities (1.6)
(1.4) (382.7) (437.9) Net assets 2,341.4 2,143.9 Equity Share capital 187.4 180.8 Share premium account 1,295.7 1,251.0 Reserves 858.2 712.0 Total shareholders' equity 2,341.3 2,143.8 Non-controlling interests 0.1 0.1 Total equity 2,341.4 2,143.9
Euro translation of consolidated statement of cash flows
For the year ended 31 December 2010
See page 34 for basis of translation.
2010 2009 €'m €'m
Cash flows from operating activities Net cash inflow from trading operations
316.0 395.9
Cash outflow related to restructuring and integration activities (43.1) (75.5)
Cash outflow related to business disposed of/held for disposal (5.6) (6.6)
Cash generated from operations 267.3 313.8 Finance costs paid (23.4) (37.6) Income tax paid (59.6) (21.7) Net cash inflow from operating activities 184.3 254.5
Cash flows from investing activities
Finance income received 4.4 6.9 Dividends received from associates
0.5 0.8
Proceeds on disposal of property, plant and equipment
0.2 3.4
Purchases of property, plant and equipment
(53.5) (38.5)
Expenditure on intangible assets
(33.7) (27.8)
Purchase of non-controlling interests
- (53.5)
Acquisition of subsidiaries and other businesses, net of cash (10.4) -acquired Proceeds on disposal of subsidiaries and other businesses, net of 3.7 0.8cash disposed Net cash outflow from investing activities (88.8) (107.9)
Cash flows from financing activities Proceeds from issue of shares allotted under share plans
0.5 -
Refund of expenses related to shares issued in prior years
6.6 -
Proceeds from bank borrowings
270.1 22.7
Repayments of bank borrowings
(467.8) (150.1)
Proceeds from private placement debt notes 104.0 - Repayments of finance leases (4.0) (3.5) Repayments of other borrowings
(0.8) (1.8)
Net proceeds from forward contracts
(20.7) 7.0
Dividends paid to the Company's shareholders
(78.2) (29.1)
Net cash outflow from financing activities (190.3) (154.8) Net decrease in cash, cash equivalents and bank overdrafts (94.8) (8.2) Cash, cash equivalents and bank overdrafts at the beginning of 124.4 125.1the year Net decrease in cash, cash equivalents and bank overdrafts
(94.8) (8.2)
Effect of foreign exchange rates
6.2 7.5
Cash, cash equivalents and bank overdrafts at the end of the year 35.8 124.4
vendorRelated Shares:
LOG.L