5th Aug 2011 07:00
5 August 2011
Logica reports first half revenue up 5% to £2.0 billion1
Headlines
Orders up 13%, driving record Outsourcing order backlog up 22% to £2.8 billion
Revenue up 5% with double digit growth in France and Northern and Central Europe
Consulting and Professional Services revenue back to growth, up 1% for the first half
Outsourcing revenue growth remained strong, up 11% in the first half
UK also back to growth in the second quarter
Adjusted operating profit down at £113 million, after incurring £20 million of restructuring costs
Margin improvement in three of our six geographies
Challenging market resulted in underlying loss in the Benelux in the first half
First half impact of outsourcing transition work in Sweden expected to lessen in second half
Cash restructuring costs combined with the working capital impact of strong revenue growth led to operating cash outflow in first half; a normal seasonal pattern with strong second half cash conversion is expected
Full year revenue growth expected to be at a similar level to the first half and to drive profit growth over last year. Margin improvement now dependent on progress in the Benelux
Interim dividend up 11% to 2.1p
For the six months ended 30 June 2011, results were as follows:
H1 2011 Actual H1 2010 Actual Growth/(Decline) Actual Pro Forma Orders £2,470m £2,142m +15% +13% Revenue £1,998m £1,871m +7% +5% Adjusted operating profit £113m £125m (10%) (11%) Adjusted operating margin 5.7% 6.7% (1.0pt) Basic adjusted EPS 5.1p 5.7p (0.6p) Dividend per share 2.1p 1.9p +11% Statutory results: Operating profit £83m £93m (11%) Operating margin 4.2% 5.0% (16%) Profit before tax £75m £86m (13%) Basic EPS 3.7p 4.3p (0.6p)
Commenting on today's announcement, Andy Green, CEO, said:
"Logica grew above the market in the first half, with particularly strong gains in Outsourcing, in France, Northern and Central Europe, and in the commercial sectors in the UK. Our order backlog is at record levels. This good topline performance reflects our success in winning some of the most exciting projects across Europe, including our largest ever HR BPO contract with Ahold, the Dutch retailer, and the significant contracts with Shell and the UK's Serious Organised Crime Agency signed earlier in the year.
Our Public Sector clients continued to implement spending cuts, with a particularly sharp decline in the Netherlands leading to disappointing profitability in the Benelux. We grew revenue and margin in half of our six geographies.
We expect full year revenue growth to be at a similar level to the first half and to drive profit growth over last year. Margin improvement is now dependent on progress in the Benelux."
1Unless otherwise stated, comparatives in the statement relate to the pro forma numbers. For definition of pro forma, adjusted operating profit, adjusted operating margin and basic adjusted EPS, please see notes on page 19.
For further information, please contact:
Logica Investor / Media relations: Karen Keyes +44 (0) 7801 723682 /Jose Cano +44 (0) 20 7446 1338 Carolyn Esser+44 (0) 7841 602391
Brunswick: Sarah West/Jonathan Glass:+44 (0) 20 7404 5959 Financial overview
New orders totalled £2,470 million in the first half (2010 actual: £2,142 million), with new Outsourcing orders representing half of the order intake at £1,232 million. Book to bill was 124% (2010 actual: 114%).
Group revenue was at £1,998 million (2010 actual: £1,871 million), up 7% on an actual basis and up 5% on a pro forma basis. Second quarter revenue was also up 5% on a pro forma basis to £1,008 million.
Profitability in the first half was lower than last year at £113 million (2010 actual: £125 million), including the benefit of a £7 million pension curtailment gain in the Benelux. Adjusted operating margin was 5.7% (2010: 6.7%). This was a result of a challenging market affecting profitability in the Benelux, transition costs associated with outsourcing work in Sweden, and our decision to record restructuring within the operating costs of the business. Restructuring costs of £20 million were taken within our adjusted operating profit in the first half (2010 actual: nil). Reported operating profit was £83 million (2010: £93 million) which included £3 million of exceptional cost related to our Grupo Gesfor acquisition. Operating margin was 4.2% in the first half (2010 actual: 5.0%). Profit before tax was £75 million (2010: £86 million).
Basic adjusted EPS was 5.1p (2010 actual: 5.7p).
Increased work in progress from strong Outsourcing growth, combined with higher restructuring costs resulted in a net cash outflow from trading operations of £ (4) million (2010 actual: £31 million inflow). With £27 million increase of net debt related to our acquisition of the Grupo Gesfor business in May 2011, closing net debt was £431 million (31 December 2010: £280 million). This represented net debt/EBITDA of 1.3x.
Outlook
Overall, the business has progressed well. We had good order and revenue performance in the first half with both Outsourcing and Consulting and Professional Services up on last year. A strong order backlog is driving outsourcing led revenue growth particularly in France and Northern and Central Europe.
While revenue growth has started to stretch our resources in some places, we are recruiting to meet demand and expect full year revenue growth to be at a similar level to the first half.
The first half saw underlying margins improve in three of our six geographies and we expect to see a similar trend in those geographies for the full year. The short term impact of outsourcing transition work in Sweden will lessen, resulting in a similar level of improvement in the second half adjusted operating profit to last year. While the Benelux continues to face a challenging Public Sector market, the growth in the commercial sectors should help drive better utilisation and profit improvement in the second half.
The £20 million of restructuring costs included in our adjusted operating profit in the first half will deliver around £10 million benefit in the second half, mainly in the UK. The remaining £5 million of restructuring will now be incurred in the second half and is expected to deliver benefits in 2012.
We expect adjusted operating profit higher than last year on a constant currency basis driven by our good revenue growth, with margin improvement now dependent on progress in the Benelux.
We expect net debt/EBITDA to be comfortably below 1.0x at year end including the impact of Grupo Gesfor. Similarly to last year, we expect strong second half cash conversion with full year cash conversion approaching 100%.
Order performance
Book to bill for the first half was again strong at 124% (2010: 114%) with Consulting and Professional Services at a healthy 111% (2010: 110%).
The strong order intake in the first half was driven by seven wins greater than £20 million (2010: seven wins) across a number of sectors, with five wins above £35 million. Orders with Shell, the Serious Organised Crime Agency and a major Dutch client were the primary drivers of a record £1.4 billion order intake in the first quarter. We added another £1.1 billion in the second quarter with a number of key wins including Michelin and international retailing group Ahold.
Managing our skills and our people
Our group headcount has risen to 41,701 (31 December 2010: 39,284 employees) with around 1,200 Grupo Gesfor employees joining Logica and following exits from the business through restructuring.
About 6,700 or 16% of our total headcount were located in our nearshore and offshore centres, compared to 5,800 at the end of 2010. We are now at 2,000 in Chennai and will open an additional site in Bangalore in the second half.
For the Group, attrition was at 13%. It remains in line with industry averages and is now almost double the three-year low of 7% at the end of December 2009 but below the peak of 2008. Subcontracting is also up in some of our geographies.
Around 4,100 new employees joined the Group in the first half of the year to support growth and compensate for attrition.
In response to the strong order intake and revenue growth, we expect to recruit another 5,000 new employees in the second half, with around 1,000 of these in France.
Wage increases averaged around 3% across the business with a strong emphasis on retaining key skills. Our average cost of labour is likely to remain relatively constant as a result of increased use of offshore labour and recruitment at more junior levels.
Analysis of revenue performance
Revenue by service line Growth Growth H1'11 on H1'11 H1'10 H1'10 H1'10 on Pro Actual Pro H1'10 % of H1'11 forma £'m forma Actual total £'m £'m % % Outsourcing Services 880 795 792 11 11 44 Consulting and Professional 1,118 1,108 1,079 1 4 56Services Total 1,998 1,903 1,871 5 7 100
Consulting and Professional Services revenue returned to growth in the first half, up 1% for the half and up 2% in the second quarter. Within the Consulting and Professional Services business, Business Consulting headcount is now at around 3,700 (2010 actual: 3,300) with increased presence in most of our geographies. We are seeing good demand around our offerings in Financial Services, Microsoft Cloud and Sustainability.
Outsourcing revenue growth remained strong, up 11% in the first half.
Revenue by geography Growth H1'11 on Growth H1'11 on H1'10 H1'10 H1'10 H1'10 H1'11 £ Pro forma Actual Pro forma Actual % of 'm £'m £'m % % total France 455 415 415 10 10 23 Northern and Central 435 393 390 11 12 22Europe UK 361 367 367 (2) (2) 18 Sweden 326 306 279 7 17 16 Benelux 242 250 257 (3) (6) 12 International 179 172 163 4 10 9 Total 1,998 1,903 1,871 5 7 100
Revenue growth was very strong in four of our geographies in the first half. The highlights were Northern and Central Europe and France, with revenue up 11% and 10% respectively. In Sweden, revenue was up 7%, while the International business was up 4%.
The revenue decline continued to slow in the UK and the Benelux. In the UK, thesecond quarter was up 1% after a 4% decline in the first quarter. Beneluxrevenue was down only 3% in the first half, compared to a 5% decline in thefirst quarter. Revenue by sector Growth Growth H1'11 on H1'11 on H1'10 H1'10 H1'10 H1'10 H1'11 Pro forma Actual Pro forma Actual % of total £'m £'m £'m % %
Trade, Transport and Industrial 576 540 529 7 9 29
Public Sector 567 598 590 (5) (4) 28 Energy and Utilities 359 325 320 10 12 18 Financial Services 327 295 290 11 13 16 Telecoms and Media 169 145 142 17 19 9 Total 1,998 1,903 1,871 5 7 100
Overall, the commercial sectors were up 10% in the first half. Trade, Transport and Industrial replaced the Public Sector as our largest sector in the first half, with growth of 7% to £576 million. Energy and Utilities was up 10% when compared to 2010, while Financial Services was up 11%. Our smallest sector, Telecoms and Media showed the strongest growth, up 17%.
Public Sector revenue overall was down 5% compared to the same period last year, due to continuing soft demand in the Benelux and the UK.
Revenue in our top 50 clients was up 10% on last year. These accounts represented 42% of Group revenue (2010 actual: 40%).
Analysis of operating performance
Adjusted operating profit by service line
H1'10 H1'11 H1'10 Pro forma H1'10 H1'11 Margin Pro forma Margin Actual £'m % £'m % £'m Outsourcing Services 54 6.2 52 6.5 51
Consulting and Professional Services 59 5.3 75 6.8 74
Total 113 5.7 127 6.7 125
In Outsourcing, we continue to focus on the industrialised processes and tools, that will drive longer term margin improvement. The decline in first half margins to 6.2% was a result of dual running and transition costs on contracts in Sweden.
Despite higher Business Consulting fee rates and stronger cost control, under utilisation in the Benelux resulting from the marked slowdown in Public Sector revenues and the incorporation of restructuring costs in adjusted operating profit saw Consulting and Professional Services margins decline to 5.3%.
Adjusted operating profit by geography
H1'10 H1'11 H1'10 Pro forma H1'10 H1'11 Margin Pro forma Margin Actual £'m % £'m % £'m France 41 9.0 34 8.1 34 Northern and Central Europe 30 6.9 26 6.6 26 UK 13 3.6 26 7.1 26 Sweden 10 3.0 17 5.5 15 Benelux 1 0.4 12 4.9 12 International 18 10.2 12 7.0 12 Total 113 5.7 127 6.7 125
Adjusted operating profit before exceptional items and amortisation of intangibles initially recognised on acquisition was £113 million (2010: £127 million). This was after restructuring costs of £20 million (2010 actual: nil) with around half of these costs taken in the UK business. The profit benefited from a curtailment gain of £7 million in the Benelux following the vote to close the CMG Netherlands Defined Benefit Pension Scheme.
Adjusted operating margin of 5.7% was a result of a challenging market affecting profitability in the Benelux, transition costs associated with outsourcing work in Sweden, and our decision to record restructuring within the operating costs of the business beginning in 2010.
Operating profit by geography H1'11 H1'11 Adjusted Amortisation H1'11 H1'11 H1'11 operating of Exceptional Operating Operating profit intangibles items profit/(loss) Margin £'m £'m £'m £'m % France 41 (6) - 35 7.6 Northern and 30 (9) - 21 4.8Central Europe UK 13 - - 13 3.6 Sweden 10 (12) - (2) (0.5) Benelux 1 - - 1 0.4 International 18 - (3) 15 8.7 Total 113 (27) (3) 83 4.2 H1'10 Adjusted H1'10 H1'10 H1'10 operating H1'10 Exceptional Operating Operating profit Amortisation of items profit/(loss) Margin £'m intangibles £'m £'m £'m % France 34 (11) - 23 5.5 Northern and 26 (10) - 16 Central Europe 4.1 UK 26 - - 26 7.1 Sweden 15 (10) - 5 1.8 Benelux 12 - - 12 4.7 International 12 (1) - 11 6.7 Total 125 (32) - 93 5.0
In line with our guidance, we did not incur any exceptional charges related to restructuring in 2010 or 2011. These were recorded within adjusted operating profit. The c. £3 million recorded in the first half of 2011 were in relation to our acquisition of Grupo Gesfor.
Operating profit was £83 million (2010 actual: £93 million). As a result, our net operating margin was 4.2%, which compared to 5.0% in 2010.
Analysis of Outsourcing Services
Outsourcing Services orders and revenue by type
H1'10 Growth H1'11 Orders H1'11 on H1'10 Orders Pro forma Pro forma £'m £'m % Applications Management (AM) 532 510 4 Infrastructure Management (IM) 420 388 8 Business Process Outsourcing (BPO) 280 64 338 Total Outsourcing Services 1,232 962 28
Outsourcing orders were up 28%, driving Outsourcing order backlog up 22% to £ 2.8 billion (end 2010: £2.3 billion). We saw good growth across all areas but BPO orders were particularly strong on the back of our wins at Shell and Ahold.
H1'10 Growth H1'11 Revenue H1'11 on H1'10 Revenue Pro forma Pro forma £'m £'m % Applications Management (AM) 466 407 14 Infrastructure Management (IM) 329 314 5 Business Process Outsourcing (BPO) 85 74 15 Total Outsourcing Services 880 795 11
Revenue was up across all areas with Infrastructure Management up as we began to implement new contracts in Sweden and Northern and Central Europe.
Outsourcing Services revenue by geography
Growth H1'10 H1'10 H1'11 on Share of H1'11 Pro forma Actual H1'10 total Revenue Revenue Revenue Pro forma Revenue £'m £'m £'m % % France 208 174 174 20 24 Northern and Central Europe 144 115 124 25 16 UK 202 194 194 4 23 Sweden 187 177 162 6 21 Benelux 40 40 47 0 5 International 99 95 91 4 11 Total Outsourcing Services 880 795 792 11 100
France and Northern and Central Europe have again delivered the strongest growth in the first half. The UK returned to growth, up 4% (2010: (3)%).
Outsourcing Services adjusted operating profit
H1'10 H1'11 Pro forma
Adjusted operating profit £'m 54 52
Adjusted operating margin % 6.2 6.5 Adjusted operating profit was £54 million. Although we have continued to drivehigher efficiency through more industrialised processes and tools, our marginhas decreased slightly to 6.2%. This was a result of the short term impact ofdual running and higher costs as we transitioned contracts in the Swedishbusiness. Review by geography France Growth Growth H1'11 on H1'11 onRevenue by market sector H1'10 H1'10 H1'10 H1'10 H1'11 Pro forma Actual Pro forma Actual £'m £'m £'m % %
Trade, Transport and Industrial 174 160 160 9 9
Financial Services 112 103 103 9 9 Other sectors 169 152 152 11 11 Total 455 415 415 10 10 Book to bill (%) 109 116 Outsourcing (%) 46 42 Adjusted operating profit (£'m) 41 34 Adjusted operating margin (%) 9.0 8.1
Revenue was up 10% on a pro forma basis to £455 million. Revenue was also up 8% in the second quarter, which marked the seventh consecutive quarter of growth. While growth remained strong across most sectors, our largest sector Transport, Trade and Industrial grew 9% as demand picked up with clients in the retail, consumer goods and transportation arenas. Among our other sectors, Public Sector and Energy and Utilities were the fastest growing, up 11% and 13% respectively.
Outsourcing revenue was up 20%, taking the percentage of revenue from Outsourcing to 46% from 42%.
Adjusted operating profit was £41 million. Against a strong comparative last year, margin increased to 9.0% on the back of strong project management that offset higher subcontracting. We focused on higher margin customers and increased use of offshore labour.
Book to bill was 109% (2010: 116%). Despite the expectation of an election inearly 2012, the Public Sector pipeline remains good. Across our other sectors,we are seeing a shift to projects that help clients drive sales efficiency andgrowth. Orders signed in the first half included a number of renewals with amajor extension of our work with Michelin as well as new billing systems workfor telecom provider Orange and applications management services at GDFSUEZ. Northern and Central Europe Growth Growth H1'11 on H1'11 onRevenue by market sector H1'10 H1'10 H1'10 H1'10 H1'11 Pro forma Actual Pro forma Actual £'m £'m £'m % %
Trade, Transport and Industrial 147 143 142 3 4
Public Sector 120 119 118 1 2 Other sectors 168 131 130 28 29 Total 435 393 390 11 12 Book to bill (%) 106 124 Outsourcing (%) 33 29 Adjusted operating profit (£'m) 30 26 Adjusted operating margin (%) 6.9 6.6
Revenue was up 11% on a pro forma basis to £435 million, with strong growth across several geographies.
A good market recovery coupled with our 2010 Outsourcing wins drove growth of 13% in Germany. For the first half, Finland revenue was up 13%. We continued to extend our business with a number of our largest accounts in Finland, while Denmark continued to be the fastest growing country on the back of the PostNord win in the first half of 2010. Norway's performance was in line with last year.
Outsourcing revenue grew 25% from a number of wins across all geographies in the first half.
Adjusted operating profit was £30 million, with margin at 6.9% as a result of improving utilisation and continued efficiency in our infrastructure management delivery.
Book to bill for the period was 106% (2010: 124%). We continue to see good demand for Microsoft offerings across our client base.
UK Growth Growth H1'11 on H1'11 onRevenue by market sector H1'10 H1'10 H1'10 H1'10 H1'11 Pro forma Actual Pro forma Actual £'m £'m £'m % % Public Sector 208 230 230 (10) (10) Energy and Utilities 70 58 58 21 21 Other sectors 83 79 79 5 5 Total 361 367 367 (2) (2) Book to bill (%) 189 83 Outsourcing (%) 56 53 Adjusted operating profit (£'m) 13 26 Adjusted operating margin (%) 3.6 7.1
We saw some important signs of progress in the UK in the first half. Although revenue for the period was still down, we saw modest growth in the second quarter. The commercial sectors returned to growth, up 12% and we further strengthened our position in justice and security in the Public Sector with the go-live of the UK Police National Database at the end of June (under the major contract we signed in 2009) and the Serious Organised Crime Agency contract awarded in the first half.
Revenue in the UK business was down 2% to £361 million, with a 10% decline in the Public Sector largely offset by 21% growth in Energy and Utilities and a 5% year on year increase in our other sectors on the back of continuing good demand in Financial Services.
Adjusted operating profit was £13 million (2010: £26 million), resulting in an adjusted operating margin of 3.6% (2010: 7.1%). This includes a £10 million restructuring charge, resulting in around 210 people exiting the UK business in the first half. The benefit of this is continuing transformation of the resource mix that will improve profit and margin going forward. On an underlying basis, excluding restructuring, margin was 6.5% (2010: 7.1%).
Book to bill was 189% for the first half (2010: 83%). Orders signed in the first half included the Serious Organised Crime Agency, Shell, UK Ministry of Defence's Shepherd programme, and orders in the utility sector from UK Power Networks, Northern Gas Networks and Welsh Water totalling over £50 million. Most recently, we were awarded contracts totalling over €55 million (£48 million) for key elements within the Galileo ground infrastructure programme and will provide the facility that will control and operate the Galileo 30 satellite fleet once fully operational.
Sweden Growth Growth H1'11 on H1'11 onRevenue by market sector H1'10 H1'10 H1'10 H1'10 H1'11 Pro forma Actual Pro forma Actual £'m £'m £'m % %
Trade, Transport and Industrial 152 134 123 13 24
Public Sector 85 84 76 1 12 Other sectors 89 88 80 1 11 Total 326 306 279 7 17 Book to bill (%) 102 157 Outsourcing (%) 57 58 Adjusted operating profit (£'m) 10 17 Adjusted operating margin (%) 3.0 5.5
Our Swedish business grew well, consolidating the position we have built as a market leader and starting to deliver on the many important Outsourcing deals signed over the last two years.
Revenue in the first half was up 7% to £326 million, with the expected slowing in the second quarter. The doubling of our revenue on contracts such as PostNord drove the 13% increase in Trade, Transport and Industrial when compared to last year.
Adjusted operating profit was £10 million, resulting in margin of 3.0%. Margin was particularly impacted by the transition of a number of large contracts and the short term use of extra subcontracting to support these transitions. Many of these contracts are in Infrastructure Management and involve a planned shift to more offshore and the streamlining of processes. This will reduce dual running and transition costs over the second half.
We have put in place actions through the second quarter which will improve margin as we come through the year. Although second half revenue growth will be slower against tougher comparatives, we expect second half profit to show a similar level of improvement to last year.
Book to bill was 102% (2010: 157%). Our order intake included a five-year, £18million Outsourcing deal with Pensionsmyndigheten (the Swedish PensionsAgency). Our longer-term order backlog remains strong, giving us goodvisibility of 2012 revenue. Benelux Growth Growth H1'11 on H1'11 onRevenue by market sector H1'10 H1'10 H1'10 H1'10 H1'11 Pro forma Actual Pro forma Actual £'m £'m £'m % % Public Sector 71 87 89 (18) (20) Financial Services 71 72 73 (1) (3)
Trade, Transport and Industrial 53 43 47 23 13
Other sectors 47 48 48 (2) (2) Total 242 250 257 (3) (6) Book to bill (%) 144 107 Outsourcing (%) 17 16 Adjusted operating profit (£'m) 1 12 Adjusted operating margin (%) 0.4 4.9
Our good progress on driving orders and commercial sector revenue in the first half was marred by a difficult Public Sector market, which challenged our performance at the operating level.
Revenue was £242 million (2010: £250 million). The revenue trend has improved with revenue down 3% in the first half, despite an 18% decline in the Public Sector due to a drop in government demand since the second quarter of last year. Revenue in the second quarter was broadly in line with last year after 10 quarters of decline. The return to growth in the commercial sectors was led by 23% growth in Trade, Transport and Industrial.
Adjusted operating profit for the first half was £1 million (2010: £12 million). The profit benefited from a curtailment gain of £7 million following a vote to close the CMG Netherlands Defined Benefit Pension Scheme, which was partly offset by second quarter restructuring costs. On an underlying basis, lower utilisation and price pressure in the Consulting and Professional Services business, coupled with initial rollout on a number of Outsourcing contracts, resulted in lower margin. We remain focused on improving utilisation.
In what continues to be a challenging market, the transformation of our business to more fixed price projects and Outsourcing is a key objective for us. Book to bill of 144% reflects solid success in signing some significant Outsourcing contracts. Our largest orders in the second quarter include a €70 million (£61 million), nine-year strategic HR Business Process Outsourcing (BPO) contract with international retailing group Ahold, working with Oracle and ADP, to implement and run new payroll and personnel administration systems and processes for 100,000 European employees.
There still remains much to do to implement the plan that we have formulated over the last six months. We have continued to manage costs tightly and to invest in our business development capability. Our focus now is to drive growth through refreshed offerings to the market and realign the business with increased resources assigned to commercial sector work. We are expecting this to drive profit improvement in the second half of 2011.
International Growth Growth H1'11 on H1'11 onRevenue by area H1'10 H1'10 H1'10 H1'10 H1'11 Pro forma Actual Pro forma Actual £'m £'m £'m % % Iberia 57 54 50 6 14 Rest of World 122 118 113 3 8 Total 179 172 163 4 10 Growth Growth H1'11 on H1'11 onRevenue by market sector H1'10 H1'10 H1'10 H1'10 H1'11 Pro forma Actual Pro forma Actual £'m £'m £'m % % Energy and Utilities 123 113 110 9 12 Financial Services 18 12 10 50 80Other sectors 38 47 43 (19) (12) Total 179 172 163 4 10 Book to bill (%) 83 98 Outsourcing (%) 55 55 Adjusted operating profit (£'m) 18 12 Adjusted operating margin (%) 10.2 7.0
Revenue was up 4% on a pro forma basis to £179 million, with Iberian revenue accounting for 32% of the total (2010: 31%). Approximately £6 million of revenue from our acquisition of Grupo Gesfor was consolidated in the first half, predominantly in Iberia.
Iberian revenue was up 6% to £57 million, representing 14% growth on an actual basis despite continuing to be slow in the context of the difficult economic environment in Iberia in the first half.
Rest of World revenue was up 3% to £122 million. Australia remains the largest component in the Rest of World cluster. The US and Brazilian businesses were both strong contributors to growth in the first half.
Adjusted operating profit was £18 million, resulting in an adjusted operating margin of 10.2%. Adjusted operating margin was up from last year as we took a £ 5 million charge related to project overruns in the Brazilian business, and benefited from a strong utilisation in the North American business in the first half of 2011.
Book to bill was 83% (2010: 98%). Discretionary work continued to be slow in the context of the difficult economic environment in Iberia and uncertain demand in the Public Sector in Australia.
Financial position Summary cash flow H1'11 H1'10 £'m £'m Adjusted operating profit 113 125 Depreciation and amortisation of intangibles not recognised on 31 27acquisition Movement in working capital (135) (124) Other non-cash movements (13) 3 Net cash (outflow)/ inflow from continuing operations (4) 31 Cash conversion (4%) 25% Cash outflow related to restructuring under the Programme for (7) (25)Growth Net financing cost paid (8) (6) Income tax paid (16) (24)
Capex less disposals of property, plant & equipment and intangible (39) (30) assets
Impact of acquisitions and disposals (27) (9) Dividends paid to shareholders (37) (37) Exchange differences and other (13) 8 Opening net debt (280) (291) Closing net debt (431) (383)
The net cash outflow from trading operations was £(4) million (2010 actual: £31 million inflow), driven by a £135 million outflow in working capital. In addition to the normal first half seasonality, we paid out the majority of the restructuring in cash. There was also an impact from the build and transformation phases on a number of new contracts.
During the first half, we made some progress on receivables but saw a greater impact on trade payables compared to last year. The decrease on trade payables was largely related to the reversal of payments received on account.
We had exceptional cash outflow of £7 million (2010 actual: £25 million), associated with the Programme for Growth costs expensed in prior years.
Net finance cost paid was £8 million (2010 actual: £6 million). We still expect full year finance costs to be around £19 million, reflecting the continued low interest rate environment and the changing mix of our facilities with the recent addition of new private placement facilities.
Payment in respect of the 2010 final dividend was £37 million (2010 actual: £37 million).
With £27 million increase of net debt related to our acquisition of Grupo Gesfor, group net debt at 30 June 2011 was £431 million (30 June 2010: £383 million), leading to net debt/EBITDA of 1.3x. This was also impacted by exchange rates at the end of June. We expect strong second half cash conversion to contribute to a reduction in the full year level of net debt and net debt/ EBITDA to be comfortably below 1.0x at the end of 2011.
Our facilities extending beyond 2012 are £794 million, following the addition of a US$300 million issue of private placement loan notes in July 2011. The private placement has extended the maturity profile and diversity of Logica's borrowings and the proceeds of the issue will be used to refinance existing debt facilities. The notes, equivalent to US$300 million, mature $50 million in 2016, $150 million in 2018 and $100 million in 2021. The proceeds of the notes have been swapped into floating rate Euros at an average rate of Euribor +1.7%.
Profit before tax and earnings per share
Profit before tax was £75 million (2010 actual: £86 million). Basic adjusted earnings per share from continuing operations were 5.1p (2010: 5.7p) on a weighted average number of shares of 1,594 million (2010: 1,589 million). Basic earnings per share from continuing operations were 3.7p (2010: 4.3p).
Taxation
The effective tax rate, before exceptional items and amortisation of intangible assets initially recognised on acquisition, was 23% (2010: 23%). The total tax charge for the first half was £17 million (2010: £18 million). The effective tax rate for 2011 is expected to remain at around 23%. The overall tax rate for the period was 23% (2010: 21%).
Acquisitions
On 24 May 2011, Logica completed the acquisition of Grupo Gesfor, a privately held Spanish consulting and professional services business. Grupo Gesfor has around 1,200 employees and operations in Spain and across Latin America. Approximately £6 million of revenue has been consolidated in the first half of 2011. Grupo Gesfor had combined revenues of €64 million (£55 million) for the year ended 31 December 2010. The total cost is expected to be up to €31 million (£25 million) of which €24 million (£21 million) was paid in cash upon completion. We had a £17 million cash outflow, net of cash acquired, related to the acquisition in the first half.
Dividend
The Board intends to ensure that the progress we have made in improving the performance of the business delivers a real return to shareholders through our dividend policy, while continuing to provide sufficient funds to invest in future growth. Our intention continues to be to increase the dividend payout ratio from 2010 levels of 34% of adjusted EPS to at least 40% by 2012. The directors are proposing an interim dividend of 2.1p to be paid on 14 October 2011 to eligible shareholders on the register at the close of business on 16 September 2011.
Next financial calendar dates
Logica's next scheduled communications to the market are:
Wednesday, 2 November 2011 Q3 2011 Interim Management StatementWednesday, 22 February 2012 FY 2011 Preliminary results Risks and uncertainties
The Board has overall responsibility for the establishment and oversight of the Group's risk management framework. The Board has an established, structured approach to risk management, which includes continuously assessing and monitoring the key risks and uncertainties of the business. The key risks have been identified as the following:
Major contract related risks
Business continuity risks associated with operational failure, information systems and data security
Business continuity risks associated with a pandemic, terrorist incident or other external event, including exposure to geopolitical, economic and social disruption, particularly in parts of Europe and in India
Achieving the objectives set for the Programme for Growth
Dependence on recruitment and retention of suitably qualified personnel
Achieving operational process excellence in our global blended delivery model
Regulatory compliance risks
Major client dependencies and regional market sector risks
Macro economic and industry level trends and changes affecting the global competitive landscape
Loss of authorisation or accreditation from vendors or disruption of key supplier relationships.
A description of these risks and the actions taken by the Group to mitigate them are set out on pages 24 and 25 of the 2010 Annual Report, a copy of which is available on the Group's website www.logica.com. Despite the current uncertainty in the global economy, our key risks, uncertainties and mitigating factors have not significantly changed in the period since the Annual Report was published, nor are they expected to change materially in the remainder of the year.
Directors' responsibility
The Directors confirm that this set of consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
An indication of important events that have occurred during the first six months and their impact on the financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
Material related party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The Directors of Logica at 31 December 2010 are listed in the Group's 2010Annual Report. A current list of directors is also maintained on the Group'swebsite: www.logica.com By order of the Board Andy Green Bill FloyddChief Executive Officer Chief Financial Officer (interim)4 August 2011 Notes:
With the exception of adjusted operating margin percentages, all numbers in this release have been rounded. Adjusted operating margin reflects the adjusted operating margin reported in the consolidated interim financial statements.
Cash conversion represents net cash inflow from trading operations divided by adjusted operating profit. Net cash inflow from trading operations is cash generated from operations before cash flows from proceeds on forward contracts, the purchase of property, plant, equipment, intangibles and restructuring and integration activities.
Book to bill percentage is a measure of the level of orders relative to revenue in the period.
Unless otherwise stated, the comparatives in this release relate to pro forma results for the first half of 2010 which:
reflect average 2011 exchange rates by retranslating prior period actual numbers at average 2010 exchange rates. This increased H1'10 revenue by £33 million and adjusted operating profit by £2 million.
are adjusted to include the acquisition and disposals that took place during 2010 and 2011 by adjusting the actual prior period numbers for the relevant period owned. This decreased H1'10 revenue by £1 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 before exceptional items and amortisation of intangible assets initially recognised at fair value in a business combination.
H1 '10 Pro H1 Pro H1 '10 forma Actual '11 forma Actual growth growth £'m £'m £'m % % Operating profit 83 93 (11%) Add back impact of: Exceptional items 3 Amortisation of acquisition related intangibles 27 32 Adjusted operating profit 113 127 125 (11%) (10%)
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:
H1 '11 H1 '10 H2 '10 FY '10 £1 / € Average 1.15 1.15 1.18 1.17
End of period 1.11 1.22 1.17 1.17
£1 / SEK Average 10.28 11.26 10.99 11. 12
End of period 10.13 11.64 10.53 10.53
Consolidated statement of comprehensive income (unaudited)
Six Six months months ended ended 30 June 30 June 2011 2010 Note £'m £'m Revenue 2 1,997.6 1,871.1 Net operating costs (1,914.3) (1,778.0) Operating profit 2,4 83.3 93.1 Analysed as: Operating profit before exceptional items 85.7 93.1 Exceptional items 3 (2.4) - Operating profit 2,4 83.3 93.1 Finance costs (14.3) (12.3) Finance income 5.6 5.0 Share of post-tax profits from associates 0.4 0.2 Profit before tax 75.0 86.0 Taxation 6 (16.6) (18.3) Net profit for the period 58.4 67.7 Other comprehensive income/(expense) Actuarial losses on defined benefit plans (8.2) (6.9) Tax on items taken directly to equity 2.3 1.9 Exchange differences on translation of foreign operations 88.6 (98.6) Interest rate swaps fair value difference (1.1) (0.3) Other comprehensive income/(expense) for the period, net 81.6 (103.9)of tax Total comprehensive income/(expense) for the period 140.0 (36.2) Profit attributable to: Owners of the parent 58.4 67.7 58.4 67.7 Total comprehensive income/(expense) attributable to: Owners of the parent 140.0 (36.2) 140.0 (36.2) Earnings per share p / share p / share - Basic 7 3.7 4.3 - Diluted 7 3.6 4.2
Dividends recognised in the period amounted to £36.6 million (six months ended 30 June 2010: £36.5 million), or 2.3p per share (six months ended 30 June 2010: 2.3p per share). The interim dividend declared but not recognised in these interim financial statements is 2.1p per share (six months ended 30 June 2010: 1.9p per share) or approximately £33.6 million (six months ended 30 June 2010: £30.2 million).
The notes on pages 24 to 31 form an integral part of this interim financial information.
Consolidated statement of financial position (unaudited)
30 June 31 December 30 June 2011 2010 2010 Note £'m £'m £'m Non-current assets Goodwill 2,009.3 1,906.5 1,801.6 Other intangible assets 184.7 200.7 208.9 Property, plant and equipment 9 149.9 138.5 127.2 Investments in associates 2.7 2.7 2.6 Financial assets 13.4 12.5 12.6 Retirement benefit assets 40.4 38.7 32.4 Deferred tax assets 70.8 70.3 69.8 Total non-current assets 2,471.2 2,369.9 2,255.1 Current assets Inventories 0.9 1.0 1.4 Trade and other receivables 1,417.1 1,252.3 1,203.0 Current tax assets 11.5 11.4 2.1 Assets classified as held-for-sale - - 1.4 Cash and cash equivalents 8 58.6 56.4 48.1 Total current assets 1,488.1 1,321.1 1,256.0 Current liabilities Other borrowings 8 (229.7) (204.3) (36.7) Trade and other payables (1,075.7) (1,062.4) (952.2) Current tax liabilities (72.0) (66.6) (54.9) Provisions 10 (23.7) (29.4) (43.0) Total current liabilities (1,401.1) (1,362.7) (1,086.8) Net current assets/ (liabilities) 87.0 (41.6) 169.2 Total assets less current liabilities 2,558.2 2,328.3 2,424.3 Non-current liabilities Borrowings 8 (259.6) (132.3) (394.6) Retirement benefit obligations (96.6) (95.2) (94.6) Deferred tax liabilities (55.2) (61.1) (65.1) Provisions 10 (33.1) (37.1) (39.3) Other non-current liabilities (1.7) (1.4) (1.2) Total non-current liabilities (446.2) (327.1) (594.8) Net assets 2,112.0 2,001.2 1,829.5 Equity Share capital 11 161.1 160.2 160.2 Share premium account 12 1,110.3 1,107.4 1,107.4 Reserves 840.6 733.5 561.8 Total shareholders' equity 2,112.0 2,001.1 1,829.4 Non-controlling interests - 0.1 0.1 Total equity 2,112.0 2,001.2 1,829.5
The notes on pages 24 to 31 form an integral part of this interim financial information.
Consolidated statement of cash flows (unaudited)
Six Six months months ended ended 30 June 30 June 2011 2010 Note £'m £'m Cash flows from operating activities Net cash (outflow)/inflow from trading operations (4.4) 31.3 Cash outflow related to restructuring and integration (7.2) (25.3)activities Cash outflow related to business disposed of/held for - (3.3)disposal Cash generated from operations 13 (11.6) 2.7 Finance costs paid (11.0) (8.0) Income tax paid (16.1) (23.9) Net cash outflow from operating activities (38.7) (29.2) Cash flows from investing activities Finance income received 3.2 2.3 Dividends received from associates 0.4 - Proceeds on disposal of property, plant and equipment 0.1 0.1 Purchases of property, plant and equipment (27.6) (18.4) Expenditure on intangible assets (11.9) (11.8) Repurchases of non-controlling interests (0.1) - Acquisition of subsidiaries and other businesses, net of (16.7) (8.9)cash acquired Net cash outflow from investing activities (52.6) (36.7) Cash flows from financing activities Proceeds from issue of shares allotted under share plans 3.2 0.4 Refund of expenses related to shares issued in prior years - 5.6 Proceeds from bank borrowings 122.9 189.8 Repayments of bank borrowings (0.6) (209.6) Repayments of finance lease principal (1.4) (1.3) Proceeds from other borrowings - 48.9 Repayments of other borrowings (0.7) (0.3) Net payments from forward contracts (1.2) (16.4) Dividends paid to the Company's shareholders (36.6) (36.5) Net cash inflow/(outflow) from financing activities 85.6 (19.4) Net decrease in cash, cash equivalents and bank overdrafts (5.7) (85.3)
Cash, cash equivalents and bank overdrafts at the beginning 8 30.6 110.1 of the period
Net decrease in cash, cash equivalents and bank overdrafts 8 (5.7) (85.3)
Effect of foreign exchange rates 8 2.2 0.5 Cash, cash equivalents and bank overdrafts at the end of the 27.1 25.3period
The notes on pages 24 to 31 form an integral part of this interim financial information.
Consolidated statement of changes in equity (unaudited)
Share Share Retained Other Total Non- Total capital premium earnings reserves Shareholder's Controlling Equity Equity interest £'m £'m £'m £'m £'m £'m £'m At 1 January 160.2 1,107.4 (239.1) 972.6 2,001.1 0.1 2,001.22011 Net profit for - - 58.4 - 58.4 - 58.4the year Other comprehensive - - income/(expense): Actuarial - - (8.2) - (8.2) - (8.2)losses Tax on items - - 2.3 - 2.3 - 2.3taken to equity Interest rate - - - - swaps fair value (1.1) (1.1) (1.1)difference Exchange - - - 88.6 88.6 - 88.6differences Total - - - comprehensive 51.4 88.6 140.0 140.0income/(expense) Transactions with owners: Dividends paid - - (36.6) - (36.6) - (36.6) Share-based - - 4.3 - 4.3 - 4.3payment Shares allotted - - under 0.9 2.9 (0.6) 3.2 3.2share plans Non-controlling - - interest - - - (0.1) (0.1)repurchases Total - transactions 0.9 2.9 (32.9) (29.1) (0.1) (29.2)with owners At 30 June 2011 161.1 1,110.3 (220.6) 1,061.2 2,112.0 - 2,112.0 At 1 January 2010 160.0 1,107.1 (331.1) 961.2 1,897.2 0.1 1,897.3
Net profit for the year - - 67.7 - 67.7 - 67.7
Other comprehensive income/(expense): - Actuarial losses - - (6.9) - (6.9) - (6.9) Tax on items taken to - - 1.9 - 1.9 - equity 1.9 Interest rate swaps fair - - (0.3) - (0.3) - value difference (0.3) Exchange differences - - - (98.6) (98.6) - (98.6) Total comprehensive income/(expense) - - 62.4 (98.6) (36.2) - (36.2) Transactions with owners: Dividends paid - - (36.5) - (36.5) - (36.5) Share-based payment - - 4.6 - 4.6 - 4.6 Shares allotted under 0.2 0.3 (0.1) - 0.4 - 0.4share plans Other - - (0.1) - (0.1) - (0.1) Total transactions with owners 0.2 0.3 (32.1) - (31.6) - (31.6) At 30 June 2010 160.2 1,107.4 (300.8) 862.6 1,829.4 0.1 1,829.5 Note 11 12
The notes on pages 24 to 31 form an integral part of this interim financial information.
Selected notes to the consolidated interim financial information
Accounting policies and basis of preparation
The consolidated interim financial information for the six months ended 30 June 2011 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. Other than as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2010, which have been prepared in accordance with IFRSs as adopted by the European Union. The consolidated interim financial information should be read in conjunction with the annual financial statements.
The Directors, having made enquiries and reviewed information, consider that the Group has adequate resources to continue in operational existence for the foreseeable future, and therefore it is appropriate to maintain the going concern basis in preparing the financial statements.
(a) The following standards, interpretations, and amendments to standards were effective during the six months ended 30 June 2011, but had no material impact on 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;
Improvements to IFRSs issued as part of annual improvements to IFRSs (May 2010).
(b) 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:
IFRS 9 'Financial Instruments', effective on or after 1 January 2013;
IFRS 10 'Consolidated Financial statements', effective on or after 1 January 2013;
IFRS 11 'Joint Arrangements', effective on or after 1 January 2013;
IFRS 12 'Disclosures of Interests in Other Entities', effective on or after 1 January 2013;
IFRS 13 'Fair value measurement', effective on or after 1 January 2013;
IAS 27 'Separate Financial statements', effective on or after 1 January 2013;
IAS 28 'Investments in Associates and Joint Ventures', effective on or after 1 January 2013;
Amendments to IFRS 7 'Financial Instruments: Disclosures' (issued 7 October 2010), effective on or after 1 July 2011;
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';
Amendments to IAS19 'Employee Benefits', effective on or after 1 January 2013;
Amendments to IAS1 'Presentation of Items of Other Comprehensive Income', effective on or after 1 July 2012.
This interim report does not constitute statutory accounts of the Group within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2010, which were prepared under International Financial Reporting Standards, have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain a statement under section 498 of the Companies Act 2006.
The most important foreign currencies for the Group are the euro and the Swedish krona. The relevant exchange rates to pounds sterling were:
30 June 2011 30 June 2010 Average Closing Average Closing £1 = € 1.15 1.11 1.15 1.22 £1 = SEK 10.28 10.13 11.26 11.64
Selected notes to the consolidated interim financial information (continued)
Segment information
In accordance with IFRS 8 'Operating Segments', Logica has derived the information for its operating segments using the information used by the Chief Operating Decision Maker. The Group has identified the Executive Committee as the Chief Operating Decision Maker as it is responsible for the allocation of resources to operating segments and assessing their performance. The profit measure used by the Executive Committee is the adjusted operating profit, as described in Note 4. Operating segments are reported in a manner which is consistent with the operating segments produced for internal management reporting.
At 30 June 2011, Logica is organised into six operating segments based on the location of assets. Segment revenue and profit after tax are disclosed below:
Revenue Operating profit/ (loss) Six months Six months Six months Six months ended ended ended ended 30 June 30 June 30 June 30 June 2011 2010 2011 2010 £'m £'m £'m £'m France 454.7 414.8 34.6 22.7 Northern and Central Europe 434.8 389.9 20.7 16.1 United Kingdom 360.7 367.0 13.1 25.9 Sweden 326.4 279.4 (1.6) 4.8 Benelux 241.5 256.6 1.0 12.2 International 179.5 163.4 15.5 11.4 Revenue and operating profit 1,997.6 1,871.1 83.3 93.1 Finance costs (14.3) (12.3) Finance income 5.6 5.0 Share of post-tax profits from 0.4 0.2associates Taxation (16.6) (18.3) Profit after tax 58.4 67.7 Exceptional items
The exceptional items recognised within operating profit were as follows:
Six months Six months ended ended 30 June 2011 30 June 2010 £'m £'m Acquisition and integration costs 2.4 -
Acquisition and integrations costs represent costs incurred by the Group in relation to the acquisition and integration of Grupo Gesfor (Note 14).
Selected notes to the consolidated interim financial information (continued)
Adjusted operating profit
Adjusted operating profit excludes: the results of discontinued operations, exceptional items and amortisation of intangible assets initially recognised at fair value in a business combination, whenever such items occur. Adjusted operating profit is not defined under IFRS and has been shown as the Directors consider this to be helpful for a better understanding of the performance of the Group's underlying business. It may not be comparable with similarly titled profit measurements reported by other companies and is not intended to be a substitute for, or superior to, IFRS measures of profit.
Six months Six months ended ended 30 June 30 June 2011 2010 £'m £'m Operating profit 83.3 93.1 Exceptional items 2.4 - Amortisation of intangible assets initially recognised on 27.3 31.6acquisition Adjusted operating profit 113.0 124.7
Adjusted operating profit analysis per operating segment was as follows:
Six months ended 30 June 2011 Operating Exceptional Amortisation Adjusted profit/ items of operating (loss) intangibles* profit £'m £'m £'m £'m France 34.6 - 6.5 41.1 Northern and Central 20.7 - 9.2 29.9Europe United Kingdom 13.1 - - 13.1 Sweden (1.6) - 11.3 9.7 Benelux 1.0 - - 1.0 International 15.5 2.4 0.3 18.2 83.3 2.4 27.3 113.0
* Amortisation of intangible assets initially recognised on acquisition.
Six months ended 30 June 2010 Operating Exceptional Amortisation Adjusted profit items of intangibles operating * profit £'m £'m £'m £'m France 22.7 - 11.1 33.8 Northern and Central 16.1 - 9.6 25.7Europe United Kingdom 25.9 - - 25.9 Sweden 4.8 - 10.5 15.3 Benelux 12.2 - - 12.2 International 11.4 - 0.4 11.8 93.1 - 31.6 124.7
* Amortisation of intangible assets initially recognised on acquisition.
Selected notes to the consolidated interim financial information (continued)
Employees Six months Six months ended ended 30 June 2011 30 June 2010 The average number of employees during the period was: Number Number France 9,221 8,915 Northern and Central Europe 7,082 6,916 United Kingdom 5,524 5,381 Sweden 5,270 5,174 Benelux 4,864 5,351 International 8,180 7,067 40,141 38,804 Six months Six months ended ended 30 June 2011 30 June 2010 The number of employees at the end of the period was: Number Number France 9,160 9,001 Northern and Central Europe 7,108 6,999 United Kingdom 5,803 5,454 Sweden 5,264 5,363 Benelux 4,834 5,180 International 9,532 7,077 41,701 39,074 Taxation
The tax charge for the six months ended 30 June 2011, before share of post-tax profits from associates and exceptional items is £16.6 million (21.6% effective tax rate) (six months ended 30 June 2010: £18.3 million (21.3% effective tax rate)) and has been based on an estimated effective tax rate for the full year excluding the impact of any share of post tax profit from associates and exceptional items.
The effective tax rate for the six months ended 30 June 2011, before exceptional items and amortisation of intangible assets initially recognised on acquisition, is 23.0% (30 June 2010: 23.0%).
The total tax charge for the six months ended 30 June 2011 is £16.6 million (six months ended 30 June 2010: £18.3 million) of which a tax credit of £7.5 million (six months ended 30 June 2010: £8.8 million) relates to exceptional items and amortisation of intangible assets initially recognised on acquisition.
The tax charge includes an overseas charge of £8.5 million (six months ended 30 June 2010: £11.9 million).
A resolution passed by Parliament on 29 March 2011 reduced the main rate of UK corporation tax to 26% from 1 April 2011. A further reduction to the main rate of UK corporation tax to 25% from 1 April 2012 was substantively enacted on 5 July 2011. Deferred tax assets and liabilities being realised or settled on or after 1 April 2012 are measured at 25%; and those being realised or settled before 1 April 2012 at 26%.
Further reductions to the main rate of UK corporation tax are proposed to reduce the rate by 1% per annum to 23% by 1 April 2014. None of these expected rate reductions had been substantively enacted at 30 June 2011 and have therefore not been reflected in the tax charge for the six months ended 30 June 2011. The overall effect of the further changes to 23%, if these applied to the deferred tax balance as at 30 June 2011, would be an additional charge of £ 2.2 million.
Selected notes to the consolidated interim financial information (continued)
Earnings per share Six months ended 30 June 2011 Weighted average Earnings Earnings number per of shares share Earnings per share £'m Million Pence Earnings attributable to ordinary shareholders 58.4 1,593.6 3.7 Basic EPS 58.4 1,593.6 3.7 Effect of share options and share awards - 41.1 (0.1) Diluted EPS 58.4 1,634.7 3.6 Adjusted earnings per share Earnings attributable to ordinary shareholders 58.4 1,593.6 3.7 Add back: Exceptional items, net of tax 2.3 0.2 Amortisation of intangible assets initially 19.9 1.2recognised on acquisition, net of tax Basic adjusted EPS 80.6 1,593.6 5.1 Effect of share options and share awards - 41.1 (0.1) Diluted adjusted EPS 80.6 1,634.7 5.0 Six months ended 30 June 2010 Weighted average Earnings Earnings number per of shares share Earnings per share £'m Million Pence Earnings attributable to ordinary shareholders 67.7 1,588.7 4.3 Basic EPS 67.7 1,588.7 4.3 Effect of share options and share awards - 33.7 (0.1) Diluted EPS 67.7 1,622.4 4.2 Adjusted earnings per share Earnings attributable to ordinary shareholders 67.7 1,588.7 4.3 Add back: Amortisation of intangible assets initially 22.8 1.4recognised on acquisition, net of tax Basic adjusted EPS 90.5 1,588.7 5.7 Effect of share options and share awards - 33.7 (0.1) Diluted adjusted EPS 90.5 1,622.4 5.6
Adjusted earnings per share, both basic and diluted, have been shown as the Directors consider this to be helpful for a better understanding of the performance of the Group's underlying business. The earnings measure used in adjusted earnings per share excludes, whenever such items occur: the results of discontinued operations; exceptional items; mark-to-market gains or losses on financial assets and financial liabilities designated at fair value through profit or loss; and amortisation of intangible assets initially recognised at fair value in a business combination. All items adjusted are net of tax where applicable.
The weighted average number of shares excludes the shares held by employee share ownership plan trusts, which are treated as cancelled.
Continuing and total operations were equal for the six months ended 30 June 2011 and 30 June 2010.
Selected notes to the consolidated interim financial information (continued)
Reconciliation of movements in net debt
At Other At 1 non-cash Exchange 30 June January Cash movements Acquisitions differences 2011 2011 flows £'m £'m £'m £'m £'m £'m Cash and cash 56.4 (4.0) - 3.7 58.6equivalents 2.5 Bank (25.8) (5.4) - - (0.3) (31.5)overdrafts 30.6 (9.4) - 3.7 2.2 27.1 Finance leases (4.2) 1.4 (0.1) (0.8) (0.1) (3.8) Bank loans (216.3) (122.3) (1.3) (3.6) (12.3) (355.8) Private (88.7) - 0.1 - (2.7) (91.3)Placement debt notes Other loans (1.6) 0.7 (0.2) (5.5) (0.3) (6.9) Net debt (280.2) (129.6) (1.5) (6.2) (13.2) (430.7) Capital expenditure Additions to property, plant and equipment during the six months ended 30 June2011 amounted to £27.7 million (six months ended 30 June 2010: £18.4 million). The net book value of property, plant and equipment disposed during the sixmonths ended 30 June 2011 amounted to £0.4 million (six months ended 30 June2010: £1.5 million). Provisions Vacant properties Restructuring Other Total £'m £'m £'m £'m At 1 January 2011 31.9 16.4 18.2 66.5 Charged in the period 0.9 12.9 1.5 15.3 Utilised in the period (5.8) (19.5) (1.1) (26.4) Unused amounts reversed in the period (0.6) - - (0.6) Unwinding of discount 0.7 - - 0.7 Exchange differences 0.2 0.3 0.8 1.3 At 30 June 2011 27.3 10.1 19.4 56.8 Analysed as: Current liabilities 23.7 Non-current liabilities 33.1 56.8
Selected notes to the consolidated interim financial information (continued)
Share capital 2011 2010 Allotted, called-up and fully paid Number £'m Number £'m At 1 January 1,601,941,495 160.2 1,600,615,806 160.0 Allotted under share plans 9,196,623 0.9 1,274,083 0.2 At 30 June 1,611,138,118 161.1 1,601,889,889 160.2 Share premium 2011 2010 £'m £'m At 1 January 1,107.4 1,107.1 Premium on shares allotted under share plans 2.9 0.3 At 30 June 1,110.3 1,107.4
Reconciliation of operating profit to cash generated from operations
Six months Six months ended ended 30 June 30 June 2011 2010 £'m £'m Operating profit from operations 83.3 93.1 Adjustments for: Share-based payments 5.0 5.6 Depreciation of property, plant and equipment 23.1 21.0 Loss on disposal of non-current assets 0.4 1.9 Amortisation of intangible assets 34.9 37.4 Non-cash element of expense for defined benefit plans (11.1) (1.8) 52.3 64.1 Net movements in provisions (11.7) (30.3) Movements in working capital: Financial assets - (0.5)Inventories 0.1 (0.5) Trade and other receivables (88.9) (116.9) Trade and other payables (46.7) (6.3) (135.5) (124.2) Cash generated from operations (11.6) 2.7 Add back: Cash outflow related to restructuring and integration activities 7.2 25.3 Add back: Cash outflow related to business disposed of/held for disposal - 3.3 Net cash (outflow)/inflow from trading operations (4.4) 31.3
Selected notes to the consolidated interim financial information (continued)
Acquisitions
On 24th May 2011 Logica acquired Grupo Gesfor, a privately held Spanish consulting and professional services business. Grupo Gesfor has around 1,200 employees and operations in Spain and across Latin America. Grupo Gesfor had combined revenues of €64 million for the year ended 31 December 2010. Logica has invested €23.4 million (£20.4 million) in cash to acquire these businesses and recognised goodwill of €21.6 million (£18.8 million). A further payment of up to €7.5 million will be payable in 2013 depending on future business performance. The calculation of goodwill is provisional pending the completion of intangible asset valuations.
Pensions
The CMG Netherlands defined benefit pension scheme closed to future salary accrual with effect from 1 January 2011. The closure was backdated following a vote by the remaining 268 active members of the scheme on 30 March 2011. Following the closure these individuals have joined a defined contribution scheme. The breaking of the salary link has lead to a curtailment gain being recognised during the period of £7.5 million.
Contingent liabilities
The size, structure and geographic spread of the Group and its activities naturally exposes it to potential scrutiny and possible legal claims including tax and other regulatory authorities in the normal course of operations. The results of tax audits and other similar enquiries are normally reflected in the accounts on an accruals basis where a recovery or liability can be predicted with reasonable certainty. Occasionally claims may be levied against the Group by such authorities, the outcomes of which cannot be predicted with reasonable certainty. While Logica strongly believes it complies with all relevant laws and regulations, and would vigorously defend itself against any such claims, if it was unsuccessful the enforcement of such claims could from time to time have a potentially material impact on the Group's results and financial position. In 2009, the Group received a VAT claim from the French tax authorities for €46 million, which is net of €13 million tax. The claim relates to the VAT treatment of goods exported from France during the years 2004-2006. The Group has carefully analysed these claims and obtained external experts' advice, as a result of which it considers that they are without merit. The Group is robustly contesting these claims through the appropriate channels albeit this is expected to be a protracted process.
Interim report
The interim report was approved by the board of directors on 4 August 2011 and copies are available from the registered office, Logica plc, 250 Brook Drive, Green Park, Reading RG2 6UA, UK and Logica, Prof. W.H. Keesomlaan 14, 1183 DJ Amstelveen, the Netherlands. The Company has its primary listing on the London Stock Exchange.
Euro translation of selected financial information (unaudited)
The Group has presented a translation of the consolidated statement of comprehensive income, consolidated statement of financial position and consolidated statement of cash flows into euros to assist users of the interim financial statements more familiar with that currency. The consolidated statement of comprehensive income and consolidated statement of cash flows in euros have been calculated by converting the consolidated sterling figures to euros at an average rate of €1.15 to £1 (six months ended 30 June 2010: €1.15 to £1) except the opening and closing net cash balance in the consolidated statement of cash flows, which uses the same rates as used in the consolidated statement of financial position as mentioned below. The consolidated statement of financial position has been calculated by converting the sterling figures to euros at the closing rate of €1.11 to £1 (31 December 2010: €1.17 to £1, 30 June 2010: €1.22 to £1).
Euro translation of consolidated statement of comprehensive income
Six months Six months ended ended 30 June 30 June 2011 2010 €'m €'m Revenue 2,297.2 2,151.8 Net operating costs (2,201.4) (2,044.7) Operating profit 95.8 107.1 Analysed as: Operating profit before exceptional items 98.6 107.1 Exceptional items (2.8) - Operating profit 95.8 107.1 Finance costs (16.4) (14.1) Finance income 6.4 5.7 Share of post-tax profits from associates 0.5 0.2 Profit before tax 86.3 98.9 Taxation (19.1) (21.0) Net profit for the period 67.2 77.9 Other comprehensive income/(expense) Actuarial losses on defined benefit plans (9.4) (7.9) Tax on items taken directly to equity 2.6 2.2
Exchange differences on translation of foreign operations 101.9 (113.4)
Interest rate swaps fair value difference (1.3) (0.4) Other comprehensive income/(expense) for the period, net 93.8 (119.5)of tax Total comprehensive income/(expense) for the period 161.0 (41.6) Profit attributable to: Owners of the parent 67.2 77.9 67.2 77.9 Total comprehensive income/(expense) attributable to: Owners of the parent 161.0 (41.6) 161.0 (41.6) Earnings per share cents / cents / share share - Basic 4.3 4.9 - Diluted 4.1 4.8
Euro translation of consolidated statement of financial position
See page 32 for basis of translation.
30 June 31 December 30 June 2011 2010 2010 €'m €'m €'m Non-current assets Goodwill 2,230.3 2,230.6 2,197.9 Other intangible assets 205.0 234.8 254.8 Property, plant and equipment 166.4 162.0 155.2 Investments in associates 3.0 3.2 3.2 Financial assets 14.9 14.6 15.4 Retirement benefit assets 44.8 45.3 39.5 Deferred tax assets 78.6 82.3 85.2 Total non-current assets 2,743.0 2,772.8 2,751.2 Current assets Inventories 1.0 1.2 1.7 Trade and other receivables 1,573.0 1,465.2 1,467.7 Current tax assets 12.8 13.3 2.5 Assets classified as held-for-sale - - 1.7 Cash and cash equivalents 65.0 66.0 58.7 Total current assets 1,651.8 1,545.7 1,532.3 Current liabilities Other borrowings (255.0) (239.1) (44.8) Trade and other payables (1,194.0) (1,243.0) (1,161.6) Current tax liabilities (79.9) (77.9) (67.0) Provisions (26.3) (34.4) (52.5) Total current liabilities (1,555.2) (1,594.4) (1,325.9) Net current assets/ (liabilities) 96.6 (48.7) 206.4 Total assets less current liabilities 2,839.6 2,724.1 2,957.6 Non-current liabilities Borrowings (288.2) (154.8) (481.4) Retirement benefit obligations (107.2) (111.4) (115.4) Deferred tax liabilities (61.3) (71.5) (79.4) Provisions (36.7) (43.4) (47.9) Other non-current liabilities (1.9) (1.6) (1.5) Total non-current liabilities (495.3) (382.7) (725.6) Net assets 2,344.3 2,341.4 2,232.0 Equity Share capital 178.8 187.4 195.5 Share premium account 1,232.4 1,295.7 1,351.0 Reserves 933.1 858.2 685.4 Total shareholders' equity 2,344.3 2,341.3 2,231.9 Non-controlling interests - 0.1 0.1 Total equity 2,344.3 2,341.4 2,232.0
Euro translation of consolidated statement of cash flows
See page 32 for basis of translation.
Six Six months months ended ended 30 June 30 June 2011 2010 €'m €'m Cash flows from operating activities Net cash (outflow)/inflow from trading operations (5.1) 36.0 Cash outflow related to restructuring and integration (8.3) (29.1)activities Cash outflow related to business disposed of/held for disposal - (3.8) Cash generated from operations (13.4) 3.1 Finance costs paid (12.6) (9.2) Income tax paid (18.5) (27.5) Net cash outflow from operating activities (44.5) (33.6) Cash flows from investing activities Finance income received 3.7 2.6 Dividends received from associates 0.5 - Proceeds on disposal of property, plant and equipment 0.1 0.1 Purchases of property, plant and equipment (31.7) (21.1) Expenditure on intangible assets (13.7) (13.6) Repurchases of non-controlling interests (0.1) -
Acquisition of subsidiaries and other businesses, net of cash (19.2) (10.2) acquired
Net cash outflow from investing activities (60.4) (42.2) Cash flows from financing activities Proceeds from issue of shares allotted under share plans 3.7 0.5 Refund of expenses related to shares issued in prior years - 6.4 Proceeds from bank borrowings 141.3 218.2 Repayments of bank borrowings (0.7) (241.0) Repayments of finance lease principal (1.6) (1.5) Proceeds from other borrowings - 56.2 Repayments of other borrowings (0.8) (0.3) Net payments from forward contracts (1.4) (18.8) Dividends paid to the Company's shareholders (42.1) (42.0) Net cash inflow/(outflow) from financing activities 98.4 (22.3) Net decrease in cash, cash equivalents and bank overdrafts (6.5) (98.1)
Cash, cash equivalents and bank overdrafts at the beginning of 35.8 124.4 the period
Net decrease in cash, cash equivalents and bank overdrafts (6.5) (98.1) Effect of foreign exchange rates 0.8 4.5 Cash, cash equivalents and bank overdrafts at the end of the 30.1 30.8period
Independent review report to Logica plc
Introduction
We have been engaged by the Company to review the consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2011, which comprises the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of cash flows, consolidated statement of changes in equity and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the consolidated financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The consolidated financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the consolidated financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLPChartered AccountantsLondon4 August 2011 Notes:
The maintenance and integrity of the Logica plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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