6th Aug 2010 07:00
6 August 2010
Logica results show improving trends
Headlines1
Orders up 2% to £2,142 million with continued strength in outsourcing orders, driving Group book to bill of 114%
Revenue down 1%
Outsourcing Services revenue up 9%
return to growth in Financial Services and IDT
improving trends through the first half in France, Northern & Central Europe and Sweden
second quarter revenue unchanged on last year, underpinning confidence in return to modest growth in the second half
Adjusted operating margin in line with last year at 6.7%
Operating profit up significantly by £54 million due to reduction in amortisation and no exceptional charges
Expected strong second half cash conversion to lead to net debt/EBITDA comfortably below 1.0x at year end
Interim dividend to rise to 1.9p, up from 1.0p in 2009, with the dividend payout ratio steadily increasing to at least 40% by 2012
For the six months ended 30 June 2010, results were as follows:
Continuing Operations H1 2010 Actual H1 2009Actual Growth/(Decline) Actual ProForma Book to Bill 114% 111% Revenue £1,871m £1,876m - (1%) Adjusted operating profit £125m £127m (2%) (2%) Adjusted operating margin 6.7% 6.8% (0.1pt) Basic adjusted EPS 5.7p 5.5p +0.2p Dividend per share 1.9p 1.0p +0.9p Statutory results: Operating profit £93m £39m +£54m Profit before tax £86m £24m +£62m Basic EPS 4.3p 1.3p +3.0p
For definition of pro forma, adjusted operating profit, adjusted operating margin and basic adjusted EPS, please see note on page 18.
Commenting on today's announcement, Andy Green, CEO, said:
"This is a good set of results in challenging economic conditions. The balanceof our business across geographies and sectors helped us to meet expectationsand outperform the market. "The guidance we set out in February remains unchanged. Gradually improvingmarket trends underpin our view that revenues and adjusted operating margin forthe full year will be at a similar level to 2009. We are pleased to beincreasing returns to shareholders, with the interim dividend rising to 1.9p."
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: Sarah West/Giles Croot +44 (0) 20 7404 5959
1 All headline numbers relate to pro forma numbers as defined on page 18.
Financial overview - continuing operations
Group revenue was at £1,871 million (2009 actual: £1,876 million). This represented a pro forma decline of 1%, in line with guidance. Our top 50 clients accounted for 40% of revenue (2009 actual: 38%).
Adjusted operating profit was £125 million (2009 actual: £127 million), representing an adjusted operating margin of 6.7%. This compared to a 2009 margin of 6.8% on both an actual and pro forma basis. Net operating profit was £93 million, compared to £39 million on an actual basis for 2009.
Basic adjusted EPS was 5.7p (2009 actual: 5.5p).
Net cash inflow from trading operations was £31 million in the first half (2009actual: £93 million). Closing net debt was £383 million (31 December 2009: £291 million) and represented net debt/EBITDA of 1.1x. We expect net debt/EBITDA to be comfortably below 1.0x at year end. Key orders and wins
New orders totalled £2,142 million in the first half. Book to bill was 114% (2009 actual: 111%), reflecting the strength in our outsourcing business.
In the first half, we had signed more mid-sized deals than at the same timelast year. We signed 7 contracts greater than £20 million in the first half(compared to 4 in the first half of 2009), with all but one in the ApplicationsManagement space. In addition, we had 12 deals greater than £10 million, whichcompared very favourably to the 3 signed at that level in 2009. By geography,these orders were stronger in Sweden and Northern & Central Europe. Of the 19major deals signed, more than half were with IDT or Financial Services clientswith key wins including Posten Norden, AMF and Lantm¤nnen and Scan. Market overview
Across the industry, outsourcing continues to be the longer term driver ofgrowth across both public and commercial sectors. Clients are looking for waysto manage their IT applications more efficiently and they are favouring acompetitive blended delivery approach. This is driving order growth inapplications management, giving us visibility of almost 90% of our expected2010 revenue. This gives us confidence that we will continue to experiencegood levels of growth in Outsourcing Services in the second half of 2010. Consistent growth in mid-sized outsourcing opportunities for energy andutilities, transport and logistics and the public sector means we have a goodpipeline for 2011 and beyond.
We are also seeing the expected stabilisation in the c. 60% of our business inConsulting and Professional Services. In the Benelux and Sweden, the impact of2009 pricing pressure has decreased as we have come through 2010, and our othergeographies have experienced only modest levels of decline. Indicators such asbook to bill at 110%, the increase in utilisation to around 80% and the rise inGroup attrition to 10% reinforce our view that Consulting and ProfessionalServices will decline more moderately in the second half of 2010. Across our business, demand from Financial Services and IDT clients has pickedup through the first half. We remain positive about the prospects for ourPublic Sector business across Europe over the medium term. Demographic changesand the transformation of government to deliver front line public services moreefficiently will continue to drive opportunities for shared service, automationand further outsourcing. Elections in a number of geographies have slowedpublic sector growth in 2010 but we have continued to win new long term workwith particularly good order intake in the public sector in France. Decisionmaking on new projects will continue to be slower in the UK through the secondhalf of 2010. Alongside other suppliers, we are working closely with the newgovernment to help determine the contribution we can make to short term savingsin elements of our UK public sector business which account for less than 10% ofoverall Group revenue. We will be looking at solutions that reduce cost whilechanging the mix of how these front line services and back office savings canbe delivered. OutlookThe balance of our business continues to underpin our expectation of full yearrevenue and adjusted operating margin at a similar level to 2009 on a pro formaconstant currency basis. Our 2009 pro forma revenue was £3,642 million (2009reported: £3,702 million), based on current exchange rates. As we indicated at the 2009 results, we do not anticipate any restructuringcharges in 2010. We expect the plans that we have been implementing since 2008to allow us to outperform the market and improve margins towards 10% over themedium term. Employees
At 30 June 2010, we had 39,074 employees (31 December 2009: 38,780).
Our ambition to have the right resources with the right skills in the rightplaces continues to guide our behaviour. We had a total of 5,650 (2009: 5,100)in our nearshore and offshore centres at the end of July despite attrition inthose centres. Headcount in our nearshore and offshore centres is expected tobe around 6,000 at year end, with increased net recruitment of trainees throughthe second half.
For the Group, attrition was up slightly in the quarter to 10%. It is now up3% against our 3-year low of 7% at the end of December 2009. Where we haveseen increased attrition and good demand, we have been actively recruitingonshore. We recruited around 2,900 people across the Group through the firsthalf. France remains the most active in this regard, with gross recruitmentof 560 in the first half, the majority of which were graduates, and a similarnumber expected to join the business in the second half. With the majority of our salary reviews completed in July, we expect modest tolow single digit wage inflation in 2010 with higher rates in our nearshore
andoffshore centres.
Operating performance - continuing operations
The basis on which we are reporting revenue and operating profit was changed atthe beginning of 2010 to reflect the management structure announced at the endof 2009 and put in place from the beginning of 2010 and the prior yearcomparatives have been restated below. Sweden and Northern & Central Europehave been introduced as new segments. More detail on the countries in eachsegment was provided at our analyst day in March 2010. Outsourcing Serviceshas been reported as a separate division from the beginning of 2009. Operatingprofit numbers for France in the first half of 2010 have improved in part dueto a change in tax legislation which is not applied to 2009 numbers. Revenue by geography Growth Growth H1'10 on H1'10 on H1'09 H1'09 H1'09 H1'09 H1'10 Pro forma Actual Pro forma Actual £'m £'m £'m % % France 415 391 401 6 3 Northern & Central Europe 390 373 378 5 3 UK 367 379 379 (3) (3) Sweden 279 277 258 1 8 Benelux 257 301 309 (15) (17) International 163 162 151 1 8 Total 1,871 1,883 1,876 (1) -
We saw a modest decline in the first half in line with our guidance. France remained our strongest market, with revenue up 6%. The Benelux experienced the most significant decline but the level of decline stabilised as we had expected.
In the second quarter, revenue at £940 million was unchanged on last year,which marked an improvement on the average decline of 3% for the previous threequarters. France, Northern & Central Europe and Sweden all grew above 4% inthe second quarter. Revenue by sector Growth Growth H1'10 on H1'10 on H1'09 H1'09 H1'09 H1'09 H1'10 Pro forma Actual Pro forma Actual £'m £'m £'m % % Public Sector 590 602 608 (2) (3)
Industry, Distribution and Transport 529 515 506
3 5 Energy and Utilities 320 332 324 (4) (1) Financial Services 290 280 283 4 2 Telecoms and Media 142 154 155 (8) (8) Total 1,871 1,883 1,876 (1) - The modest decline overall reflected the balance of our business, with growthagainst weaker 2009 comparatives in Financial Services and IDT but some slowingin other sectors. Financial Services showed a strong return to growth, up 4%in the first half compared to a 20% decline in full year 2009. IDT alsoperformed well, up 3% in the first half compared to a 9% decline in full year2009. The expected decline in the Public Sector reflected slower decisionmaking and a lower volume of short term orders around elections, particularlyin the UK and the Benelux, which was partially offset by good growth in Franceand the International business. Energy and Utilities and Telecoms and Mediaboth showed declines against a strong 2009 comparative.
Adjusted operating profit by geography
H1'09 H1'10 H1'09 Pro forma H1'09 H1'10 Margin Pro forma Margin Actual £'m % £'m % £'m France 34 8.1 26 6.8 27 Northern & Central Europe 26 6.6 25 6.6 25 UK 26 7.1 29 7.6 29 Sweden 15 5.5 19 6.7 18 Benelux 12 4.7 15 5.1 16 International 12 7.2 13 8.3 12 Total 125 6.7 127 6.8 127
Adjusted operating profit before exceptional items and amortisation of intangibles initially recognised on acquisition was £125 million.
Adjusted operating margin was 6.7%, broadly in line with the first half of lastyear. As expected, the impact of volume and pricing reductions agreed duringthe first half of 2009 had an impact on the first half margins, which wasoffset by cost reductions from actions taken in 2009 and an improvement in theFrench operating margin, due in part to a change of tax legislation in France. Operating profit by geography H1'10 H1'10 Adjusted Amortisation H1'10 H1'10 H1'10 operating of Exceptional Operating Operating profit intangibles items profit Margin £'m £'m £'m £'m % France 34 (11) - 23 5.5 Northern & Central 26 (10) - 16 4.1Europe 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 H1'09 Adjusted H1'09 H1'09 H1'09 operating H1'09 Exceptional Operating Operating profit Amortisation of items profit/(loss) Margin £'m intangibles £'m £'m £'m % France 27 (14) (5) 8 2.0 Northern & 25 (13) - 12 3.2Central Europe UK 29 - (14) 15 4.0 Sweden 18 (17) (7) (6) (2.2) Benelux 16 - (17) (1) (0.3) International 12 - (1) 11 6.8 Total 127 (44) (44) 39 2.1
Lower amortisation and no exceptional charges led to a significant increase in our operating profit to £93 million (2009 actual: £39 million).
Brand names in most territories have now been fully amortised, resulting in a reduction of our amortisation expense to £32 million (2009 actual: £44 million).
In line with our guidance, we did not incur any exceptional charges in 2010,while in 2009 we incurred £44 million mainly related to our 2008 Programme
forGrowth.
As a result, our net operating margin was 5.0%, compared to 2.1% in 2009.
Group revenue by service line
Growth Growth H1'10 on H1'10 on H1'09 H1'09 H1'09 H1'09 H1'10 Pro forma Actual Pro forma Actual £'m £'m £'m % % Outsourcing Services 792 728 681 9 16 Consulting and Professional Services 1,079 1,155 1,195 (7) (10) Total 1,871 1,883 1,876 (1) - Outsourcing Services revenue was up 9% on a pro forma basis to £792 million. It represented 42% of Group revenue in the first half (2009: 39%), with stronggrowth continuing to compensate for lower revenue in the 58% of the Grouprevenue of Consulting and Professional Services. There was some slowing in therevenue decline in the Consulting and Professional Services business. Revenuewas down 7% in the first half but reflected a lower level of decline in thesecond quarter, down 5%. We are establishing Business Consulting as a service line within the Consultingand Professional Services part of our business. At the end of the first half,we had around 3,300 employees within the Business Consulting organisation, withFrance, Sweden and Finland our largest consulting businesses. Although we didsee some improvement in underlying utilisation trends reflecting an improvingeconomy, we see room for further improvement in utilisation as we convert moreof our recent recruits to billable activity. In the wider Consulting andProfessional business, utilisation was around 80%. Outsourcing Services
Outsourcing Services orders and revenue by type
Growth H1'09 H1'10 on H1'10 Orders H1'09 Orders Pro forma Pro forma £'m £'m % Applications Management (AM) 507 401 26 Infrastructure Management (IM) 385 355 8
Business Process Outsourcing (BPO) 66 81 (19)
Total Outsourcing Services 958 837 14 Book to bill (%) 121 115 Growth H1'09 H1'10 on H1'10 Revenue H1'09 Revenue Pro forma Pro forma £'m £'m % Applications Management (AM) 401 350 15 Infrastructure Management (IM) 313 309 1
Business Process Outsourcing (BPO) 78 69 13
Total Outsourcing Services 792 728 9 Within Outsourcing Services, AM continued to be the largest component ofrevenue and was the fastest growing, up 15% in the first half. BPO also grewsignificantly, up 13%. We have refocused our HR offering to BPO with thedisposal of the lower margin payroll business in the Netherlands, with thisbusiness held for disposal since the end of 2009 and the disposal completed
inJuly 2010. IM was broadly stable, accounting for 40% of outsourcing revenue. AM also accounted for the majority of our new orders in the first half, withorders in this part of Outsourcing Services up 26%. We continually work tomaintain our market leading share of the European applications managementmarket and have identified a number of areas which we expect to drive furtherdemand in this market, such as security management of applications placed onthe cloud, mobile application management and globally blended shared servicescombining skills from both onshore and offshore regions. Book to bill for the first half remained strong at 121% (2009:115%). Acrossour geographies, demand for Outsourcing Services remained robust and our ordersperformance continues to reflect our increased sales and marketing investmentsin this area since 2008. Overall orders were up 14% in the period. Swedendelivered the largest share of orders in the first half, while France, Finlandand the Benelux delivered the strongest growth.
Outsourcing Services revenue by geography
H1'09 Share of Actual Growth total Revenue from H1'10 Revenue from H1'09 outsourcing on outsourcing H1'10 Pro forma £'m H1'09 % Revenue from Revenue from Pro outsourcing outsourcing forma £'m £'m % France 174 145 149 20 22 Northern & 124 105 86 18 16Central Europe 194 199 186 (3) 24UK Sweden 162 143 127 13 21 Benelux 47 48 64 (2) 6 International 91 88 69 3 11 Total 728 681 9 100Outsourcing 792 Services
Amongst our largest geographies, France, Northern & Central Europe and Sweden delivered the strongest growth with the UK slowing against a very strong comparative in 2009.
Outsourcing Services adjusted operating profit
H1'09 H1'10 Pro forma
Adjusted operating profit £'m 51 46
Adjusted operating margin % 6.5 6.4 Adjusted operating profit was £51 million, resulting in an adjusted operatingmargin of 6.5% as we continue to focus on moving activities offshore and higherefficiency through more industrialised processes and tools.
Review of continuing operations by geography
France Growth Growth H1'10 on H1'10 onRevenue by market sector H1'09 H1'09 H1'09 H1'09 H1'10 Pro forma Actual Pro forma Actual £'m £'m £'m % %
Industry, Distribution and Transport 160 145 143 10
12 Financial Services 103 98 101 5 2 Other sectors 152 148 157 3 (3) Total 415 391 401 6 3 Book to bill (%) 116 124 Outsourcing (%) 42 37
Adjusted operating profit (£'m) 34 26
Adjusted operating margin (%) 8.1 6.8 Revenue was up 6% on a pro forma basis to £415 million. This was the thirdconsecutive quarter of growth in the French business, with revenue up 10% inthe second quarter. The fastest growth was in Public Sector revenue due tothe initial deployment of contracts awarded in 2009. Our visibility ofoutsourcing revenue remains very high and we continue to recruit to meet goodclient demand in the rest of the business. Adjusted operating profit was £34 million. Cost base reductions undertaken in2009, such as property rationalisation and reduction of non-billable headcount,and strong utilisation contributed to an adjusted operating margin of 8.1%.
It also benefited in part from a change in tax legislation in France which benefited operating profit by around £4 million.
Book to bill in the first half remained good at 116% (2009: 124%). Orderssigned in the first half include a 3-year contract with La Banque Postale tomanage part of the activities of their service centre. In addition, we aretaking on the implementation and operational maintenance of mobile operatorOrange's billing systems under a 5-year contract which will see us become theirstrategic partner for the order-to-bill process for the mobile mass market.
In
partnership with Detica, we also signed a contract with the French police force to deliver a global web solution for criminal analysis.
Northern & Central Europe Growth Growth H1'10 on H1'10 onRevenue by market sector H1'09 H1'09 H1'09 H1'09 H1'10 Pro forma Actual Pro forma Actual £'m £'m £'m % % Industry, Distribution and 142 133 135 7 5Transport Public Sector 118 114 116 4 2 Other sectors 130 126 127 3 2 Total 390 373 378 5 3 Outsourcing (%) 32 28 Book to bill (%) 124 114
Adjusted operating profit (£'m) 26 25
Adjusted operating margin (%) 6.6 6.6 Revenue was up 5% on a pro forma basis to £390 million. Finland was the bestperforming geography, up 9% in the first half with our other large geographies(Germany, Denmark) also growing in the first half. Adjusted operating profit was £26 million. We maintained adjusted operatingmargin at 6.6% despite some wage inflation as markets improved. Improvingutilisation, continued efficiency in our infrastructure management delivery andgood demand in Germany should contribute to better margins going forward. Book to bill for the period was 124% (2009: 114%). Orders growth of 14% in thefirst half resulted mainly from strong growth in Denmark, helped by the PostenNorden win, together with some growth in Finland, Germany and CEE. We signed anew contract with the Slovakia Ministry of Finance to design and implementsoftware solutions to enable electronic processing of administrative files
andgeneral practices. UK Growth Growth H1'10 on H1'10 onRevenue by market sector H1'09 H1'09 H1'09 H1'09 H1'10 Pro forma Actual Pro forma Actual £'m £'m £'m % % Public Sector 230 233 233 (1) (1) Energy and Utilities 58 55 55 5 5 Other sectors 79 91 91 (13) (13) Total 367 379 379 (3) (3) Outsourcing (%) 53 53 Book to bill (%) 83 97
Adjusted operating profit (£'m) 26 29 Adjusted operating margin (%) 7.1 7.6
Revenue in the UK business was down 3% on a pro forma basis to £367 million,compared to a strong first half in 2009. Public Sector revenue in the firsthalf was down 1% as a result of expected weakness in the wake of the election. Although there was good growth in Energy and Utilities and Financial Services,overall revenue in the commercial sectors declined, mainly due to weakness inTelecoms against a strong 2009 comparative, when the sector was up 75%. Basedon current visibility, we expect second half revenue for the UK to be at asimilar level to that of the first half.
Adjusted operating profit was £26 million (2009: £29 million), resulting in an adjusted operating margin of 7.1% as we increased investment in bidding and sales.
Book to bill was 83% for the first half (2009: 97%). We continue to expect itto improve to 100% for the full year. Our confidence is based on an increasein the absolute volume of opportunities we are bidding in the commercial andpublic sectors, with particular growth in energy and utilities in light ofregulatory changes as well as in the public sector where we are involved indelivering services to 55 departments and agencies and are participating indiscussions across those departments to help understand their priorities and tobring ideas on how to address the challenges they face. We are also seeinggrowth in the pipeline in financial services. Orders signed in the first half include incremental orders with BT as well asnew public sector work under the DII framework for the Ministry of Defence andextensions of our work with the European Space Agency. Since the end of thefirst half, we have signed a 4-year contract with Ofcom. Sweden Growth Growth H1'10 on H1'10 onRevenue by market sector H1'09 H1'09 H1'09 H1'09 H1'10 Pro forma Actual Pro forma Actual £'m £'m £'m % % Industry, Distribution and 123 125 116 (2) 6Transport Public Sector 76 82 77 (7) (1) Other sectors 80 70 65 14 23 Total 279 277 258 1 8 Outsourcing (%) 58 52 Book to bill (%) 157 143
Adjusted operating profit (£'m) 15 19
Adjusted operating margin (%) 5.5 6.7
Revenue was up 1% on a pro forma basis to £279 million. We saw a modest decline in IDT and lower volumes in the Public Sector. Across our other sectors, lower license revenue in Energy and Utilities was more than offset by strong growth with new orders in Telecoms and Financial Services.
Adjusted operating profit was £15 million. The decline in adjusted operatingmargin to 5.5% was partly attributable to volume and pricing reductions agreedin 2009. Managing our cost base in Sweden continues to be a high priority asdoes margin management under existing contracts. Higher attrition is beingpartially offset by employee transfers into the business under existingoutsourcing contracts which is helping to renew our skills mix. We have been very successful in winning new business in a competitive market. Book to bill for the period was 157% (2009: 143%). In addition to previouslydisclosed wins with Posten Norden and Lantm¤nnen and Scan in the first quarterwe had additional first half wins in the Financial Services sector with Skandiaand Landshypotek. We also signed a major outsourcing contract renewal withpension administration company AMF. The 5-year contract is an extension of theoriginal service contract signed in 2005 involving application, serveroperation, communication and service desk. The new agreement involves adecrease in the number of dedicated servers with a goal of achieving 70%virtualisation. Given the weight of outsourcing in Sweden, our backlog and visibility for thesecond half is higher than any other region, with good visibility of 2011revenue. Benelux Growth Growth H1'10 on H1'10 onRevenue by market sector H1'09 H1'09 H1'09 H1'09 H1'10 Pro forma Actual Pro forma Actual £'m £'m £'m % % Public Sector 89 108 111 (18) (20) Industry, Distribution and 47 57 58 (18) (19)Transport Financial Services 73 74 76 (1) (4) Other sectors 48 62 64 (23) (25) Total 257 301 309 (15) (17) Outsourcing (%) 18 16 Book to bill (%) 107 87
Adjusted operating profit (£'m) 12 15 Adjusted operating margin (%) 4.7 5.1
Revenue was down 15% on a pro forma basis to £257 million. The revenuedecline reflected stable pricing levels, lower than those prevailing in thefirst half of 2009, following pricing reductions agreed through the first fewmonths of 2009. With pricing stabilisation through the end of 2009 and into2010, we expect a lesser impact in the second half. The most notable positivetrend was in Financial Services, where revenue was down 1% versus 32% in 2009. This helped counter the unexpected impact of slower decision making in ourPublic Sector business as a result of the elections. We expect an improvementin the second half. The combination of these two factors gives us increasedconfidence that the rate of revenue decline will slow as we come through 2010. Adjusted operating profit for the first half was £12 million (2009: £15million). Adjusted operating margin was 4.7% (2009: 5.1%). We were able todeploy more people onto work in the second quarter, resulting in utilisation ataround 75% compared to low 70s at the end of 2009. As previously disclosed, wecompleted the disposal of our Dutch payroll business post the first half. The most significant indication of the improving market in the Benelux was abook to bill of 107% (2009: 87%). Orders in the second quarter were stable orup on the first quarter across all sectors. Public Sector remained ourlargest sector and was stable from an orders and revenue perspective. Wins inthe first half included a 2.5-year contract with DHL to take over part of theirIT management, supporting 26 business critical sorting and planningapplications involving the transfer of 10 DHL employees. We also signed a7-year, €18 million contract with social security agency UWV to manage theDutch public sector's largest case management systems. International Growth Growth H1'10 on H1'10 onRevenue by area H1'09 H1'09 H1'09 H1'09 H1'10 Pro forma Actual Pro forma Actual £'m £'m £'m % % Iberia 50 52 53 (4) (6) Rest of World 113 110 98 3 15 Total 163 162 151 1 8 Growth Growth H1'10 on H1'10 onRevenue by market sector H1'09 H1'09 H1'09 H1'09 H1'10 Pro forma Actual Pro forma Actual £'m £'m £'m % %
Industry, Distribution and Transport 14 11 10 27
40 Energy and Utilities 110 116 107 (5) 3 Financial Services 10 12 12 (17) (17) Other sectors 29 23 22 26 32 Total 163 162 151 1 8 Outsourcing (%) 56 54 Book to bill (%) 98 102
Adjusted operating profit (£'m) 12 13
Adjusted operating margin (%) 7.2 8.3
Revenue was up 1% on a pro forma basis to £163 million, with Iberian revenue accounting for 31% of the total (2009: 32%).
Iberian revenue was down 4% to £50 million against a strong 2009 comparativeand some slowing of discretionary work in a difficult economic environment
inPortugal in the first half. In the Rest of World (Australia, Brazil, USA, Middle East, Asia Pacific)revenue was up 3% to £113 million. Australia is the largest component in theRest of World cluster and was also the strongest performer, building on strongclient relationships as we renewed and extended contracts with major clientssuch as Integral Energy. The US and the Middle East were also up, whilerevenue in Brazil was down following a good performance in 2009. Adjusted operating profit was £12 million, resulting in an adjusted operatingmargin of 7.2%. The decline in adjusted operating margin was due to phasing ofmore discretionary work, mainly in the Energy and Utilities sector and someproject overruns in the Brazilian business. In the second quarter, allgeographies in the International cluster had stable or improving utilisationcontributing to strong utilisation overall.
Book to bill at 98% (2009: 102%) was lower than expected due to decision making on some deals moving into the second half.
Financial position Summary cash flow H1'10 H1'09 £'m £'m Adjusted operating profit 125 127
Depreciation and amortisation of intangibles not recognised on 27
28acquisition Movement in working capital (124) (63) Other non-cash movements 3 1
Net cash inflow from continuing operations 31
93 Cash conversion 25% 73% Cash outflow related to restructuring under the Programme for (25) (31)Growth Net financing cost paid (6) (18) Income tax paid (24) (26) Capex less disposals of property, plant & equipment and intangible (30) (28)assets
Impact of acquisitions and disposals (9)
(47)
Dividends paid to shareholders (37)
(9)
Exchange differences and other 8
47 Opening net debt (291) (438) Closing net debt (383) (457)
The net cash inflow from trading operations was £31 million (2009 actual: £93million), leading to a cash conversion ratio of 25% (2009 actual: 73%), drivenby a £124 million outflow in working capital following a very strong cashperformance at the end of 2009. In addition to the normal first halfseasonality, there was also an impact from the build and transformation phaseson a number of new contracts. One off items included exceptionals cash outflow of £25 million (2009 actual: £31 million), associated with the Programme for Growth costs expensed in prioryears.
Net finance cost paid was £6 million (2009 actual: £18 million). We now expectfull year finance costs to be around £17 million, reflecting the continued
lowinterest rate environment.
Payment in respect of the second half of 2009 dividend was £37 million (2009 actual: £9 million).
Group net debt at 30 June 2010 was £383 million (2009 actual: £457 million),leading to net debt/EBITDA of 1.1x. We expect strong second half cashconversion to contribute to a reduction in the full year level of net debt andnet debt/EBITDA to be comfortably below 1.0x at the end of 2010. We have extended the maturity of our £100 million receivables-backed facilityto July 2015 (from July 2011). Our facilities extending beyond 2011 are £460million.
Profit before tax and earnings per share
Profit before tax was £86 million (2009 actual: £24 million). Basic adjusted earnings per share from continuing operations were 5.7p (2009: 5.5p) on a weighted average number of shares of 1,589 million (2009: 1,585 million). Basic earnings per share from continuing operations were 4.3p (2009: 1.3p).
TaxationThe effective tax rate, before exceptional items and amortisation of intangibleassets initially recognised on acquisition, was 23% (2009: 23%). The total taxcharge for the first half was £18 million (2009: £3 million). The effectivetax rate for 2010 is expected to remain at around 23%. The overall tax ratefor the period was 21% (2009: 12%) due to the absence of restructuring chargesin the first half of 2010. DisposalsSince the end of the first half, we completed the disposal of our lower marginDutch payroll processing business. The sale consideration is contingent on therevenue performance of the business. Dividend
The Board intends to ensure that the progress we have made in improving theperformance of the business delivers a real return to shareholders through ourdividend policy, while continuing to provide sufficient funds to invest infuture growth. We are today announcing our intention to steadily move thedividend payout ratio from 2009 levels of 28% to at least 40% by 2012. Basedon first half basic adjusted EPS of 5.7p in 2010, the directors are proposingan interim dividend of 1.9p to be paid on 15 October 2010 to eligibleshareholders on the register at the close of business on 17 September 2010.
We would expect the full year 2010 dividend to be at a similar payout ratio of approximately a third of adjusted EPS.
Next financial calendar dates
Logica's next scheduled communications to the market are:
Wednesday, 3 November 2010 Q3 2010 Interim Management StatementWednesday, 23 February 2011 FY 2010 Preliminary results Risks and uncertainties
The Board has overall responsibility for the establishment and oversight of theGroup's risk management framework. The Board has an established, structuredapproach to risk management, which includes continuously assessing andmonitoring the key risks and uncertainties of the business. The key risks havebeen 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 mitigatethem are set out on pages 70 and 71 of the 2009 Annual Report, a copy of whichis available on the Group's website www.logica.com. Despite the currentuncertainty in the global economy, our key risks, uncertainties and mitigatingfactors have not significantly changed in the period since the Annual Reportwas published, nor are they expected to change materially in the remainder
ofthe 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 sixmonths and their impact on the financial statements, and a description of theprincipal risks and uncertainties for the remaining six months of the financialyear; 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 2009 are listed in the Group's 2009Annual Report. A current list of directors is also maintained on the Group'swebsite: www.logica.com By order of the Board Andy Green Seamus KeatingChief Executive Officer Chief Financial and OperationsOfficer5 August 2010 Notes:
With the exception of adjusted operating margin percentages, all numbers in this release have been rounded. Adjusted operating margin reflects the adjusted operating margin reported in the consolidated financial statements.
Cash conversion represents net cash inflow from trading operations divided 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 the first half of 2009 which:
reflect average 2010 exchange rates by retranslating prior period actual numbers at average 2010 exchange rates. This increased H1'09 revenue by £10 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 decreasedH1'09 revenue by £3 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. H1 '09 Pro H1 Pro H1 '09 forma Actual '10 forma Actual growth growth £'m £'m £'m % % Operating profit 93 39 138% Add back impact of: Exceptional items - 44
Amortisation of acquisition related
intangibles 32 44 Adjusted operating profit 125 127 127 (2%) (2%)
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 '10 H1 '09 H2 '09 FY '09 £1 / € Average 1.15 1.12 1.12 1.12
End of period 1.22 1.17 1.13 1.13
£1 / SEK Average 11.26 12.16 11.66 11.91
End of period 11.64 12.76 11.53 11.53
Consolidated statement of comprehensive income (unaudited)
Six months Six months ended ended 30 June 30 June 2010 2009 Note £'m £'m Revenue 3 1,871.1 1,876.1 Net operating costs (1,778.0) (1,837.5) Operating profit 3,5 93.1 38.6 Analysed as: Operating profit before exceptional 93.1 82.6items Exceptional items 4 - (44.0) Operating profit 3,5 93.1 38.6 Finance costs (12.3) (19.1) Finance income 5.0 4.3
Share of post-tax profits from associates 0.2
0.4 Profit before tax 86.0 24.2 Taxation 7 (18.3) (3.0) Net profit for the period 67.7 21.2
Other comprehensive (expense)/income Exchange differences on translation of (98.6)
(196.7)foreign operations
Interest rate swaps fair value difference (0.3)
-
Actuarial losses on defined benefit plans (6.9)
(67.6)
Tax on items taken directly to equity 1.9
17.8
Other comprehensive expense for the (103.9)
(246.5)period, net of tax
Total comprehensive expense for the period (36.2)
(225.3) Profit attributable to: Owners of the parent 67.7 21.2 67.7 21.2
Total comprehensive expense attributable
to: Owners of the parent (36.2) (224.2) Non-controlling interests - (1.1) (36.2) (225.3) Earnings per share p p / share / share - Basic 8 4.3 1.3 - Diluted 8 4.2 1.3 Dividends recognised in the period amounted to £36.5 million (six months ended30 June 2009: £9.5 million), or 2.3p per share (six months ended 30 June 2009:0.60p per share). The interim dividend declared but not recognised in theseinterim financial statements is 1.9p per share (six months ended 30 June 2009:1.0p per share) or approximately £30.2 million (six months ended 30 June 2009:£15.9 million).
The notes on pages 23 to 30 form an integral part of this interim financial information.
Consolidated statement of financial position (unaudited)
Restated* 30 June 31 December 30 June 2010 2009 2009 Note £'m £'m £'m Non-current assets Goodwill 1,801.6 1,883.6 1,786.9 Other intangible assets 208.9 243.4 277.1
Property, plant and equipment 10 127.2 132.8
131.8 Investments in associates 2.6 2.6 2.4 Financial assets 12.6 12.4 12.1 Retirement benefit assets 32.4 27.4 19.6 Deferred tax assets 69.8 74.8 63.4 Total non-current assets 2,255.1 2,377.0 2,293.3 Current assets Inventories 1.4 1.1 0.7 Trade and other receivables 1,203.0 1,130.1 1,172.2 Current tax assets 2.1 3.1 14.4 Assets classified as 15 1.4 1.5 -held-for-sale Cash and cash equivalents 9 48.1 139.3 61.2 Total current assets 1,256.0 1,275.1 1,248.5 Current liabilities Other borrowings 9 (36.7) (247.9) (17.9) Trade and other payables (952.2) (992.7) (935.4) Current tax liabilities (54.9) (58.5) (47.1) Provisions 11 (43.0) (68.3) (48.9) Total current liabilities (1,086.8) (1,367.4) (1,049.3) Net current assets / 169.2 (92.3) 199.2(liabilities) Total assets less current 2,424.3 2,284.7 2,492.5liabilities Non-current liabilities Borrowings 9 (394.6) (182.0) (500.7)
Retirement benefit obligations (94.6) (83.6)
(87.9) Deferred tax liabilities (65.1) (75.3) (84.7) Provisions 11 (39.3) (45.3) (42.1)
Other non-current liabilities (1.2) (1.2)
(1.0)
Total non-current liabilities (594.8) (387.4)
(716.4) Net assets 1,829.5 1,897.3 1,776.1 Equity Share capital 12 160.2 160.0 160.0 Share premium account 13 1,107.4 1,107.1 1,101.5 Reserves 561.8 630.1 514.5 Total shareholders' equity 1,829.4 1,897.2 1,776.0 Non-controlling interests 0.1 0.1 0.1 Total equity 1,829.5 1,897.3 1,776.1
* Restated as described in Note 2
The notes on pages 23to 30 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 2010 2009 Note £'m £'m
Cash flows from operating activities Net cash inflow from trading operations
31.3 93.1
Cash outflow related to restructuring and integration (25.3) (31.5)activities Cash outflow related to business held-for-disposal
(3.3) -
Cash generated from operations 14 2.7 61.6 Finance costs paid (8.0) (19.2) Income tax paid (23.9) (26.0) Net cash (outflow)/inflow from operating activities (29.2) 16.4
Cash flows from investing activities
Finance income received 2.3 1.7
Dividends received from associates
- 0.7
Proceeds on disposal of property, plant and equipment
0.1 0.1
Purchases of property, plant and equipment
(18.4) (17.6)
Expenditure on intangible assets
(11.8) (10.5)
Purchase of non-controlling interests
- (47.8)
Acquisition of subsidiaries and other businesses, net of (8.9) -cash acquired
Disposal of subsidiaries and other businesses, net of cash
- 0.5disposed Net cash outflow from investing activities (36.7) (72.9)
Cash flows from financing activities Proceeds from issue of new shares
0.4 -
Refund of expenses related to shares issued in prior years
5.6 -
Proceeds from bank borrowings
189.8 18.4
Repayments of bank borrowings
(209.6) (0.5)
Repayments of finance lease principal
(1.3) (2.2)
Proceeds from other borrowings
48.9 -
Repayments of other borrowings
(0.3) (0.8)
Payments on forward contracts
(16.4) (12.3)
Dividends paid to the Company's shareholders
(36.5) (9.5)
Net cash outflow from financing activities (19.4) (6.9) Net decrease in cash, cash equivalents and bank overdrafts (85.3) (63.4) Cash, cash equivalents and bank overdrafts at the beginning 9 110.1 121.5of the period
Net decrease in cash, cash equivalents and bank overdrafts 9 (85.3) (63.4)
Effect of foreign exchange rates 9
0.5 (5.9)
Cash, cash equivalents and bank overdrafts at the end of the 25.3 52.2period
The notes on pages 23 to 30 form an integral part of this interim financial information.
Consolidated statement of changes in equity (unaudited)
Note 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 160.0 1,107.1 (331.1) 961.2 1,897.2 0.1 1,897.3 2010 Net profit for - - 67.7 - 67.7 - 67.7 the year Other comprehensive - income/(expense): Actuarial - - (6.9) - (6.9) - (6.9) losses Tax on items - - 1.9 - 1.9 - 1.9 taken to equity Interest rate swaps - - (0.3) - (0.3) - (0.3) fair value difference Exchange - - - (98.6) (98.6) - (98.6) differences Total comprehensive - - 62.4 (98.6) (36.2) - (36.2) income/(expense) Transactions with owners: Dividends paid - - (36.5) - (36.5) - (36.5) Share-based - - 4.6 - 4.6 - 4.6 payment Allotted under 0.2 0.3 (0.1) - 0.4 - 0.4 share plans Other - - (0.1) - (0.1) - (0.1) Total 0.2 0.3 (32.1) - (31.6) - (31.6) transactions with owners At 30 June 2010 160.2 1,107.4 (300.8) 862.6 1,829.4 0.1 1,829.5 Restated * At 1 January 159.8 1,101.5 (349.2) 1,129.4 2,041.5 13.4 2,054.9 2009 Net profit for - - 21.2 - 21.2 - 21.2 the year Other comprehensive income/(expense): Actuarial - - (67.6) - (67.6) - (67.6) losses Tax on items - - 17.8 - 17.8 - 17.8 taken to equity Transfer of - - 75.9 (75.9) - - - realised reserve Exchange - - - (195.6) (195.6) (1.1) (196.7) differences
Total comprehensive - - 47.3 (271.5) (224.2)
(1.1) (225.3) income/(expense) Transactions with owners: Dividends paid - - (9.5) - (9.5) - (9.5) Share-based - - 4.6 - 4.6 - 4.6 payment Allotted under 0.2 - (0.2) - - - - share plans Non-controlling 2 - - (36.2) - (36.2) (12.0) (48.2) interest repurchases Disposal of - - - - - - (0.2) (0.2) subsidiaries Other - - (0.2) - (0.2) - (0.2) Total 0.2 - (41.5) - (41.3) (12.2) (53.5) transactions with owners At 30 June 2009 160.0 1,101.5 (343.4) 857.9 1,776.0 0.1 1,776.1 Note 12 13
* Restated as described in Note 2
The notes on pages 23 to 30 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 June2010 has been prepared in accordance with the Disclosure and Transparency Rulesof the Financial Services Authority and with IAS 34, 'Interim financialreporting' as adopted by the European Union. Other than as described below, theaccounting policies applied are consistent with those of the annual financialstatements for the year ended 31 December 2009, which have been prepared inaccordance with IFRSs as adopted by the European Union. The consolidatedinterim financial information should be read in conjunction with the annualfinancial statements. The Directors, having made enquiries and reviewed information, consider thatthe Group has adequate resources to continue in operational existence for theforeseeable future, and therefore it is appropriate to maintain the goingconcern basis in preparing the financial statements. (a) The following standards, interpretations, and amendments to standards wereeffective during the six months ended 30 June 2010, but had no material impacton the 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 16, 'Hedges of a net investment in a foreign operation';
IFRIC 18, 'Transfers of Assets from Customers';
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;IAS 39 'Financial Instruments: Recognition and Measurement', effective on orafter 30 June 2009, amended to clarify the treatment of embedded derivativeswhere transactions are reclassified from Fair Value Through Profit or Loss(FVTPL). Where transactions are reclassified embedded derivatives may need tobe separated from the host and continue to be treated as FVTPL;
Amendments to IFRS 1 'Additional Exemptions for First-time Adopters', effective on or after 1 January 2010.
(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 on or after 1 February 2010;
IAS 24 R 'Related Party Disclosures', effective on or after 1 January 2011;
Amendment to IFRIC 14 'Prepayments of a Minimum Funding Requirement', effective on or after 1 January 2011;
Amendment to IFRS 1 'Limited exemptions from Comparative IFRS 7 Disclosures for First-time Adopters', effective on or after 1 July 2010;
IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments', effective 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);
IFRS 9 'Financial Instruments', effective on or after 1 January 2013.
This interim report does not constitute statutory accounts of the Group withinthe meaning of section 434 of the Companies Act 2006. Statutory accounts forthe year ended 31 December 2009, which were prepared under InternationalFinancial Reporting Standards, have been filed with the Registrar ofCompanies. The auditors' report on those accounts was unqualified and did notcontain a statement under section 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 2010 30 June 2009 Average Closing Average Closing £1 = € 1.15 1.22 1.12 1.17 £1 = SEK 11.26 11.64 12.16 12.76
Selected notes to the consolidated interim financial information (continued)
Restatement of consolidated statement of financial position at 30 June 2009 In the second half of 2009, the Group early adopted IFRS 3 R, 'Businesscombinations' and consequentially also IAS 27 R, 'Consolidated and SeparateFinancial Statements' from 1 January 2009. The revised standards require thatacquisitions and disposals that do not result in a change of control areaccounted for within equity. Any difference between the change in thenon-controlling interest and the fair value of the consideration paid orreceived is recognised directly in equity and attributed to the owners of theparent and does not generate goodwill. During February and March 2009 the Group made payments to acquire thenon-controlling interest in Logica Aktiebolag, a Group company, and redeemedthe remaining shares and convertibles issued by the Swedish subsidiary, whichwas part of the WM-data Group acquisition in 2006. Consequently, the excess of£36.2 million previously recorded as goodwill, has been restated and recordedas a movement in equity. As a result of this, £1,812.3 million total equity asat 30 June 2009 reported last year changed to £1,776.1 million. 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 5. Operating segments are reported in a manner which isconsistent with the operating segments produced for internal managementreporting. During the current period 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 currentperiod the Swedish business is reported as a separate operating segment, whichhas resulted in reclassification of £257.8 million of revenue, £6.0 million ofoperating loss and £17.4 million of adjusted operating profit (Note 5) relatingto six months ended 30 June 2009 from the Nordics segment to the Swedensegment. Also, the German, Switzerland, and the Central and Eastern Europebusinesses were consolidated in a newly created Northern and Central Europesegment along with rest of the Nordics segment, which has resulted inreclassification of £117.1 million of revenue, £0.4 million of operating profitand £3.0 million of adjusted operating profit (Note 5) relating to six monthsended 30 June 2009 from the International segment to the Northern and CentralEurope segment. At 30 June 2010, Logica is organised into six operating segments based on thelocation 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 2010 2009 2010 2009 £'m £'m £'m £'m France 414.8 401.5 22.7 8.3 Northern and Central Europe 389.9 377.8 16.1 11.7 United Kingdom 367.0 379.1 25.9 14.9 Sweden 279.4 257.8 4.8 (6.0) Benelux 256.6 308.8 12.2 (1.4) International 163.4 151.1 11.4 11.1 Revenue and operating profit 1,871.1 1,876.1 93.1 38.6 Finance costs (12.3) (19.1) Finance income 5.0 4.3
Share of post-tax profits from 0.2
0.4associates Taxation (18.3) (3.0) Profit after tax 67.7 21.2
Selected notes to the consolidated interim financial information (continued)
Exceptional items
The exceptional items recognised within operating profit were as follows:
Six months Six months ended ended 30 June 2010 30 June 2009 £'m £'m Restructuring costs - (44.6)
Profit on disposal of business -
0.6 - (44.0) During the six months ended 30 June 2010, the Group incurred no expensesrelating to the restructuring of the business (six months ended 30 June 2009: £44.6 million). The restructuring cost in prior year comprised costs associatedwith the closure of offices in the UK and France, and redundancy of staffacross the Group, primarily in the Netherlands. Adjusted operating profit
Adjusted operating profit excludes: the results of discontinued operations,exceptional items and amortisation of intangible assets initially recognised atfair value in a business combination, whenever such items occur. Adjustedoperating profit is not defined under IFRS and has been shown as the Directorsconsider this to be helpful for a better understanding of the performance ofthe Group's underlying business. It may not be comparable with similarlytitled profit measurements reported by other companies and is not intended tobe a substitute for, or superior to, IFRS measures of profit. Six months Six months ended ended 30 June 30 June 2010 2009 £'m £'m Operating profit 93.1 38.6 Exceptional items - 44.0
Amortisation of intangible assets initially recognised on 31.6
44.1acquisition Adjusted operating profit 124.7 126.7
Adjusted operating profit analysis per operating segment was as follows:
Six months ended 30 June 2010 Operating Exceptional Amortisation Adjusted profit items of operating profit intangibles* £'m £'m £'m £'m France 22.7 - 11.1 33.8 Northern and 16.1 - 9.6 25.7Central Europe 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)
Adjusted operating profit (continued) Six months ended 30 June 2009 Operating Exceptional Amortisation Adjusted profit/ (loss) items of operating intangibles* profit £'m £'m £'m £'m France 8.3 4.7 14.4 27.4 Northern and 11.7 0.7 12.6 25.0Central Europe United Kingdom 14.9 13.9 - 28.8 Sweden (6.0) 6.7 16.7 17.4 Benelux (1.4) 17.4 - 16.0 International 11.1 0.6 0.4 12.1 44.1 38.6 44.0 126.7
* Amortisation of intangible assets initially recognised on acquisition.
Employees Six months Six months ended ended 30 June 2010 30 June 2009
The average number of employees during the period was: Number
Number France 8,915 9,041 Northern and Central Europe 6,916 6,981 United Kingdom 5,381 5,400 Sweden 5,174 5,295 Benelux 5,351 6,060 International 7,067 7,053 38,804 39,830 Six months Six months ended ended 30 June 2010 30 June 2009
The number of employees at the end of the period was: Number
Number France 9,001 8,920 Northern and Central Europe 6,999 6,932 United Kingdom 5,454 5,385 Sweden 5,363 5,292 Benelux 5,180 5,870 International 7,077 7,126 39,074 39,525 Taxation The tax charge for the six months ended 30 June 2010, before share of post-taxprofits from associates and exceptional items is £18.3 million (21.3% effectivetax rate) (six months ended 30 June 2009: £13.2 million (19.4% effective taxrate)) and has been based on an estimated effective tax rate for the full yearexcluding the impact of any share of post tax profit from associates andexceptional items.
The effective tax rate for the six months ended 30 June 2010, before exceptional items and amortisation of intangible assets initially recognised on acquisition, is 23.0% (30 June 2009: 22.8%).
The total tax charge for the six months ended 30 June 2010 is £18.3 million(six months ended 30 June 2009: £3.0 million) of which a tax credit of £8.8million (six months ended 30 June 2009: tax credit of £22.6 million) relates toexceptional items and amortisation of intangible assets initially recognised onacquisition.
The tax charge includes an overseas charge of £11.9 million (six months ended 30 June 2009: £1.8 million).
The reduction in the statutory corporate tax rate in the UK from 28% to 27% hasnot been substantially enacted at 30 June 2010 and has therefore not beenreflected in the tax charge for the six months ended 30 June 2010. The effecton the results for the year ended 31 December 2010 of this change is expectedto be an additional charge of £1.0 million as a result of reduction in deferredtax assets recognised.
Selected notes to the consolidated interim financial information (continued)
Earnings per share Six months ended 30 June 2010 Weighted average Earnings Earnings number per of shares share Earnings per share £'m Million Pence 67.7 1,588.7 4.3
Earnings attributable to ordinary shareholders
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
1.4
recognised 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 Six months ended 30 June 2009 Weighted average Earnings Earnings number per of shares share Earnings per share £'m Million Pence 21.2 1,585.1 1.3
Earnings attributable to ordinary shareholders
Basic EPS 21.2 1,585.1 1.3 Effect of share options and share awards - 24.3 - Diluted EPS 21.2 1,609.4 1.3 Adjusted earnings per share Earnings attributable to ordinary shareholders 21.2 1,585.1 1.3 Add back: Exceptional items, net of tax 33.8 2.2
Amortisation of intangible assets initially 31.7
2.0
recognised on acquisition, net of tax
Basic adjusted EPS 86.7 1,585.1 5.5 Effect of share options and share awards - 24.3 (0.1) Diluted adjusted EPS 86.7 1,609.4 5.4
Selected notes to the consolidated interim financial information (continued)
Earnings per share (continued)
Adjusted earnings per share, both basic and diluted, have been shown as theDirectors consider this to be helpful for a better understanding of theperformance of the Group's underlying business. The earnings measure used inadjusted earnings per share excludes, whenever such items occur: the results ofdiscontinued operations; exceptional items; mark-to-market gains or losses onfinancial assets and financial liabilities designated at fair value throughprofit or loss; and amortisation of intangible assets initially recognised atfair value in a business combination. All items adjusted are net of tax whereapplicable.
The weighted average number of shares excludes the shares held by employee share ownership plan trusts, which are treated as cancelled.
Continuing and total operations were equal for the six months ended 30 June 2010 and 30 June 2009.
Reconciliation of movements in net debt At Other At 1 non-cash Exchange 30 June January Cash movements differences 2010 2010 flows £'m £'m £'m £'m £'m Cash and cash 139.3 (90.8) - (0.4) 48.1equivalents Bank overdrafts (29.2) 5.5 - 0.9 (22.8) 110.1 (85.3) - 0.5 25.3 Finance leases (6.2) 1.6 (0.3) - (4.9) Bank loans (392.2) 19.8 (1.1) 18.4 (355.1) Other loans (2.3) (48.6) (0.5) 2.9 (48.5) Net debt (290.6) (112.5) (1.9) 21.8 (383.2) Capital expenditure Additions to property, plant and equipment during the six months ended 30 June2010 amounted to £18.4 million (six months ended 30 June 2009: £18.4 million). The net book value of property, plant and equipment disposed during the sixmonths ended 30 June 2010 amounted to £1.5 million (six months ended 30 June2009: £0.9 million). 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 period 0.3 - 0.1 0.4 Utilised in the period (7.6) (19.0) (3.6) (30.2)
Unused amounts reversed in the period (0.5) -
- (0.5) Unwinding of discount 0.9 - - 0.9 Exchange differences (0.6) (0.5) (0.8) (1.9) At 30 June 2010 39.3 26.2 16.8 82.3 Analysed as: Current liabilities 43.0 Non-current liabilities 39.3 82.3 Selected notes to the consolidated interim financial information (continued) Share capital 30 30 June June 2009 2010 Authorised £'m £'m 2,250,000,000 (30 June 2009: 2,250,000,000) ordinary 225.0 225.0shares of 10p each 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 1,274,083 0.2 1,825,183 0.2 At 30 June 1,601,889,889 160.2 1,600,184,704 160.0 Share premium 2010 2009 £'m £'m At 1 January 1,107.1 1,101.5
Premium on shares allotted under share 0.3 -plans At 30 June 1,107.4 1,101.5 Reconciliation of operating profit to cash generated from operations Six Six months months ended ended 30 June 30 June 2010 2009 £'m £'m
Operating profit from operations
93.1 38.6 Adjustments for: Share-based payments 5.6 4.8
Depreciation of property, plant and equipment 21.0 22.4 Loss on disposal of non-current assets 1.9 0.4 Profit on sale of subsidiaries and other businesses - (0.6) Amortisation of intangible assets 37.4 49.5 Non-cash element of expense for defined benefit plans
(1.8) (2.3) 64.1 74.2
Net movements in provisions
(30.3) 11.4
Movements in working capital:
Financial assets (0.5) 0.5 (0.5) (0.1)Inventories Trade and other receivables (116.9) 51.7 Trade and other payables (6.3) (114.7) (124.2) (62.6)
Cash generated from operations
2.7 61.6 Add back: Cash outflow related to restructuring and integration activities 25.3 31.5 Add back Cash outflow related to business held-for-disposal 3.3 -
Net cash inflow from trading operations
31.3 93.1
Selected notes to the consolidated interim financial information (continued)
Assets classified as held-for-sale
The assets classified as held-for-sale relate to intangible assets held by theGroup's payroll processing division in the Netherlands. Following a decisionby the Board of Directors in 2009, the Group decided to sell the business. Thesale of the business completed on 16 July 2010, the sales consideration iscontingent on revenue of the business, but is expected to be at least £1.4
million. Acquisitions During the period the Group has completed two minor acquisitions of businessesin Sweden and Denmark. These acquisitions have been in connection withoutsourcing contract wins and have involved taking over people and in somecases certain fixed assets. The Group has invested £9.1 million (including £0.2 million deferred consideration) to acquire these businesses and recognisedgoodwill of £6.7 million. The calculation of goodwill is provisional pendingthe completion of intangible asset valuations. Pensions
On 30 April 2010 the Group closed the largest defined benefit scheme in the UKto future salary accrual. The closure of the CMG UK Pension Scheme to accrualhas lead to a curtailment loss of £0.1 million being recognised during theperiod. Following the closure the Group has less than 100 active members ofits UK defined benefit pension schemes. Contingent liabilities The size, structure and geographic spread of the Group and its activitiesnaturally exposes it to potential scrutiny and possible claims including taxand other regulatory authorities in the normal course of operations. Theresults of tax audits and other similar enquiries are normally reflected in theaccounts on an accruals basis where a recovery or liability can be predictedwith reasonable certainty. Occasionally claims may be levied against the Groupby such authorities, the outcomes of which cannot be predicted with reasonablecertainty. While Logica strongly believes it complies with all relevant lawsand regulations, and would vigorously defend itself against any such claims, ifit was unsuccessful the enforcement of such claims could from time to time havea potentially material impact on the Group's results and financial position. Aspart of those enquiries, the Group had, in 2009, received a €46 million, whichis net of €13 million tax, VAT claim from the French tax authorities. Theclaim relates to the VAT treatment of goods exported from France during theyears 2004-2006. The Group has carefully analysed these claims and obtainedexternal experts' advice, as a result of which it considers that they arewithout merit. The Group is robustly contesting these claims through theappropriate channels albeit this is expected to be a protracted process. Interim report
The interim report was approved by the board of directors on 5 August 2010 andcopies 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 DJAmstelveen, the Netherlands. The Company has its primary listing on the LondonStock Exchange.
Euro translation of selected financial information (unaudited)
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 interim financial statements morefamiliar with that currency. The statement of comprehensive income andstatement of cash flows in euros have been calculated by converting theconsolidated sterling figures to euros at an average rate of €1.15 to £1 (sixmonths ended 30 June 2009: €1.12 to £1) except the opening and closing net cashbalance in the statement of cash flow, which uses the same rates as used in thestatement of financial position as mentioned below. The statement of financialposition has been calculated by converting the sterling figures to euros at theclosing rate of €1.22 to £1 (31 December 2009: €1.13 to £1, 30 June 2009: €1.17to £1).
Euro translation of consolidated statement of comprehensive income
Six months Six months ended ended 30 June 30 June 2010 2009 €'m €'m Revenue 2,151.8 2,101.2 Net operating costs (2,044.7) (2,058.0) Operating profit 107.1 43.2 Analysed as: Operating profit before exceptional items 107.1 92.5 Exceptional items - (49.3) Operating profit 107.1 43.2 Finance costs (14.1) (21.4) Finance income 5.7 4.8
Share of post-tax profits from associates 0.2
0.5 Profit before tax 98.9 27.1 Taxation (21.0) (3.4) Net profit for the period 77.9 23.7
Other comprehensive (expense)/income Exchange differences on translation of foreign (113.4)
(220.3)operations
Interest rate swaps fair value difference (0.4)
-
Actuarial losses on defined benefit plans (7.9)
(75.7)
Tax on items taken directly to equity 2.2
20.0
Other comprehensive expense for the period, net (119.5)
(276.0)of tax
Total comprehensive expense for the period (41.6)
(252.3) Profit attributable to: Owners of the parent 77.9 23.7 77.9 23.7
Total comprehensive expense attributable to:
Owners of the parent (41.6) (251.1) Non-controlling interests - (1.2) (41.6) (252.3) Earnings per share cents / cents / share share - Basic 4.9 1.5 - Diluted 4.8 1.5
Euro translation of consolidated statement of financial position
See page 31 for basis of translation.
Restated * 30 June 31 30 June December 2010 2009 2009 €'m €'m €'m Non-current assets Goodwill 2,197.9 2,128.5 2,090.7 Other intangible assets 254.8 275.0 324.2 Property, plant and equipment 155.2 150.1 154.2 Investments in associates 3.2 2.9 2.8 Financial assets 15.4 14.0 14.2 Retirement benefit assets 39.5 31.0 22.9 Deferred tax assets 85.2 84.5 74.2 Total non-current assets 2,751.2 2,686.0 2,683.2 Current assets Inventories 1.7 1.2 0.8 Trade and other receivables 1,467.7 1,277.1 1,371.4 Current tax assets 2.5 3.5 16.9
Assets classified as held-for-sale 1.7 1.7
- Cash and cash equivalents 58.7 157.4 71.6 Total current assets 1,532.3 1,440.9 1,460.7 Current liabilities Other borrowings (44.8) (280.1) (20.9) Trade and other payables (1,161.6) (1,121.7) (1,094.4) Current tax liabilities (67.0) (66.1) (55.1) Provisions (52.5) (77.2) (57.2) Total current liabilities (1,325.9) (1,545.1) (1,227.6)
Net current assets / (liabilities) 206.4 (104.2)
233.1 Total assets less current 2,957.6 2,581.8 2,916.3liabilities Non-current liabilities Borrowings (481.4) (205.7) (585.8)
Retirement benefit obligations (115.4) (94.5)
(102.8) Deferred tax liabilities (79.4) (85.1) (99.1) Provisions (47.9) (51.2) (49.3)
Other non-current liabilities (1.5) (1.4)
(1.2)
Total non-current liabilities (725.6) (437.9)
(838.2) Net assets 2,232.0 2,143.9 2,078.1 Equity Share capital 195.5 180.8 187.2 Share premium account 1,351.0 1,251.0 1,288.8 Reserves 685.4 712.0 602.0 Total shareholders' equity 2,231.9 2,143.8 2,078.0 Non-controlling interests 0.1 0.1 0.1 Total equity 2,232.0 2,143.9 2,078.1
* Restated as described in Note 2
Euro translation of consolidated statement of cash flows
See page 31 for basis of translation.
Six Six months months ended ended 30 June 30 June 2010 2009 €'m €'m
Cash flows from operating activities Net cash inflow from trading operations 36.0
104.3
Cash outflow related to restructuring and integration (29.1)
(35.3)activities
Cash outflow related to business held-for-disposal (3.8)
-
Cash generated from operations 3.1
69.0 Finance costs paid (9.2) (21.5) Income tax paid (27.5) (29.1)
Net cash (outflow)/inflow from operating activities (33.6)
18.4
Cash flows from investing activities
Finance income received 2.6 1.9
Dividends received from associates -
0.8
Proceeds on disposal of property, plant and equipment 0.1
0.1
Purchases of property, plant and equipment (21.1)
(19.7)
Expenditure on intangible assets (13.6)
(11.8)
Purchase of non-controlling interests -
(53.5)
Acquisition of subsidiaries and other businesses, net of cash (10.2)
-acquired
Disposal of subsidiaries and other businesses, net of cash -
0.6disposed
Net cash outflow from investing activities (42.2)
(81.6)
Cash flows from financing activities Proceeds from issue of new shares 0.5
-
Refund of expenses related to shares issued in prior years 6.4
-
Proceeds from bank borrowings 218.2
20.6
Repayments of bank borrowings (241.0)
(0.6)
Repayments of finance lease principal (1.5)
(2.5)
Proceeds from other borrowings 56.2
-
Repayments of other borrowings (0.3)
(0.9)
Payments on forward contracts (18.8)
(13.8)
Dividends paid to the Company's shareholders (42.0)
(10.6)
Net cash outflow from financing activities (22.3)
(7.8)
Net decrease in cash, cash equivalents and bank overdrafts (98.1)
(71.0)
Cash, cash equivalents and bank overdrafts at the beginning of 124.4
125.1the period Net decrease in cash, cash equivalents and bank overdrafts (98.1) (71.0)
Effect of foreign exchange rates 4.5
7.0
Cash, cash equivalents and bank overdrafts at the end of the 30.8
61.1period
Independent review report to Logica plc
Introduction We have been engaged by the Company to review the consolidated financialstatements in the half-yearly financial report for the six months ended 30 June2010, which comprises the consolidated statement of comprehensive income,consolidated statement of financial position, consolidated statement of cashflows, consolidated statement of changes in equity and related notes. We haveread the other information contained in the half-yearly financial report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the information in the consolidated financial statements. Directors' responsibilities The half-yearly financial report is the responsibility of, and has beenapproved by, the directors. The directors are responsible for preparing thehalf-yearly financial report in accordance with the Disclosure and TransparencyRules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the group 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 theconsolidated financial statements in the half-yearly financial report based onour review. This report, including the conclusion, has been prepared for andonly for the Company for the purpose of the Disclosure and Transparency Rulesof the Financial Services Authority and for no other purpose. We do not, inproducing this report, accept or assume responsibility for any other purpose orto any other person to whom this report is shown or into whose hands it maycome save where expressly agreed by our prior consent in writing. Scope of review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, 'Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us tobelieve that the consolidated financial statements in the half-yearly financialreport for the six months ended 30 June 2010 is not prepared, in all materialrespects, in accordance with International Accounting Standard 34 as adopted bythe European Union and the Disclosure and Transparency Rules of the UnitedKingdom's Financial Services Authority. PricewaterhouseCoopers LLPChartered AccountantsLondon5 August 2010 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.
vendorRelated Shares:
LOG.L