7 August 2009
Logica delivers good first half results in challenging markets
Headlines1
Group orders up 3% on last year
Revenue down 2% (up 6% on a reported basis), driven by Outsourcing Services
revenue up 10%
Adjusted operating margin maintained at 6.8%, in line with last year on a pro
forma basis, underpinned by cost savings of £30 million
Operating cash conversion of 73%; net debt of £457 million at 30 June 2009
Programme for Growth continued to deliver results:
Full year 2009 cost savings on track
Plans implemented to deliver the 2010 cost savings objective of £110 million
Restructuring costs unchanged at £145 million
Full year 2009 guidance:
Margin expectations at same level as last year
Net debt/EBITDA now expected to be below 1.2x at year end
Improved debt maturity profile as a result of additional financing facilities
For the six months ended 30 June 2009, results were as follows:
Continuing Operations H1 2009 Actual H1 2008 Actual Growth
Actual ProForma
Book to Bill 111% 105%
Revenue £1,876m £1,769m 6% (2%)
Adjusted operating profit £127m £118m 8% (2%)
Adjusted operating margin 6.8% 6.7% - -
Basic adjusted EPS 5.5p 5.4p
Dividend per share 1.0p 2.4p
Statutory results:
Operating profit £39m £29m
Profit before tax £24m £13m
Basic EPS 1.3p 0.4p
For definition of pro forma, adjusted operating profit, adjusted operating
margin and basic adjusted EPS, please see note on page 17.
Commenting on today's announcement, Andy Green, CEO, said:
"Logica has produced good results in a challenging market by executing on our
strategy. The impact of our investments in customer facing teams is
particularly clear in Outsourcing Services where orders are up 18%, and in the
UK where revenues are up 7%. Our strong cost programme has ensured solid
margin delivery despite volume and price pressure.
"While there is still uncertainty in the consulting and professional services
market, we have taken swift action in more difficult geographies to protect
margins. We expect these actions and the strength of our outsourcing business
to allow us to maintain margin in line with last year."
For further information, please contact:
Logica Investor relations: Karen Keyes/Frances Gibbons +44 (0) 20 7446 1338/+44
(0) 7801 723682
Logica Media relations: Carolyn Esser/Anna Brog +44 (0) 7841 602391/+44 (0)
7595 612269
Brunswick: Tom Buchanan +44 (0) 20 7404 5959
1 All headline numbers relate to pro forma numbers as defined on page 17.
Financial overview - continuing operations
Group revenue was in line with guidance at £1,876 million, up 6% on a reported
basis (2008 actual: £1,769 million). This represented a pro forma decline of
2%. Revenue for the second quarter was up 2% on a reported basis, representing
a pro forma decline of 4%. The impact of the fewer number of working days in
the second quarter was a decline in pro forma revenue of approximately 2%.
Adjusted operating profit was £127 million (2008 actual: £118 million),
representing an adjusted operating margin of 6.8% (2008 actual: 6.7%). Basic
adjusted EPS was 5.5p (2008 actual: 5.4p). Operating profit of £39 million
(2008 actual: £29 million) reflected amortisation of intangible assets from
acquisition of £44 million and the £44 million exceptional charges mainly
associated with the Programme for Growth.
Net cash inflow from trading operations was £93 million in the first half,
leading to cash conversion of 73% (2008 actual: 83%). There was a cash outflow
of £48 million related to the one-off minority buy-out of WM-data and a
restructuring outflow of £31 million. Closing net debt was approximately 19%
lower than at the end of the first half of 2008 at £457 million. This
represented net debt/EBITDA of 1.3x. In line with the decision announced in
December 2008, the proposed interim dividend is 1.0p (2008: 2.4p). It is
expected that the dividend will be maintained at a level of around 3p for 2009,
with a plan to return to progressive increases in the dividend thereafter.
Book to bill was 111% (2008: 105%), reflecting the strength in our outsourcing
business. The outsourcing book to bill was 115% (2008:107%). First half wins,
which contributed to a strengthened outsourcing order backlog, were
predominantly booked in the first quarter. These included the 7 year, £76.5
million contract to design, build and operate the UK's Police National Database
and the contract with TeliaSonera to provide managed workspace services to
34,000 IT users. We made good progress in the HR and BPO areas with wins in
the second quarter including Channel 4 and Ford.
Market overview and outlook
The first half of 2009 reflected the reality of customers adjusting to an
economic environment significantly more constrained than in 2008. For IT
services, this has meant an increased focus from customers on their cost
reduction, with a consequent increase in the pipeline of outsourcing
opportunities for Logica. It has also led to a reduction in demand under
consulting framework contracts and delays on systems integration projects.
While pricing appears to have stabilised on our major consulting framework
agreements in recent months, our visibility of shorter term consulting revenue
streams for the fourth quarter remains limited. However, our visibility of
total contracted revenue for the Group is higher than at this time last year.
In today's competitive environment, it is key throughout the Group that we
enhance further our blended delivery model, manage utilisation and
subcontractor levels effectively and implement our cost reduction programme
decisively.
While uncertainty remains in the consulting and professional services market,
we expect a broadly similar percentage decline in the Group's overall revenue
on a pro forma basis in the second half, with trading patterns remaining
unchanged. We expect the strength of our outsourcing business and the
continued successful execution of our cost savings programmes to allow us to
maintain margin in line with last year.
Progress on Programme for Growth
Our Programme for Growth has enabled us to manage our way through a difficult
first half, delivering a good set of results in a challenging market
environment. We grew revenue in three of our five market sectors. Investment
in strengthening our sales and account management, consulting leadership and
outsourcing deals team has led to a higher volume of opportunities and an
increasingly resilient business mix.
We made significant progress in building our outsourcing business. This now
represents 36% of Group revenue, exceeding the target of 35% we set in 2008.
In November 2008 and February 2009, we announced our intention to accelerate
the cost savings which underpin the programme and to slow investments in light
of deteriorating market conditions. Our 2009 cost savings of £75 million and
investments of £30 million in sales and marketing remain on track and the
expected overall one-off cost of the programme remains at £145 million, of
which £61 million are expected to be incurred in 2009.
We have flexed the plan to react to changing market developments. In
particular, we have slowed onshore and offshore recruitment in light of
adoption of blended delivery by clients, and have agreed with our European
Works Council additional schemes in our European markets to increase our
flexibility. We have implemented plans which we expect to deliver £110 million
of savings in 2010.
Competitive costs
Our competitive cost programme has focused on reducing employee numbers where
demand was weakest; in the first half the most significant reduction occurred
in the Netherlands. Overall we now expect a total headcount reduction of 1,900
from the Programme. We continued with office rationalisation, including the
exit of a building in Paris, space rationalisation in Portugal and relocation
of the US head office. In addition, we achieved considerable savings through
the execution of companywide procurement activities and processes.
In the first half, we saw the initial benefits of the action taken to
streamline the organisation come through, particularly in the UK. Total cost
savings were £30 million in the first half, with expected second half cost
savings of around £45 million, compared with the cost base we had in place at
the end of 2007.
Additional measures to improve flexibility
At 30 June 2009, we had 39,525 employees (31 December 2008: 39,937), with
recruitment in the first half limited to strengthening of our sales and
marketing and delivery capability in nearshore and offshore locations. 240
staff from TeliaSonera in the Nordics transferred to Logica under the recently
announced contract. Six month annualised attrition was at 8% for the Group (31
December 2008: 13%). We expect attrition to be in the range of 5%-8% across our
major geographies at the end of the year.
With the exception of previously agreed increases through collective
agreements, of which the most significant are in the Nordics, we have not made
general increases in salaries in 2009 and do not plan to do so.
The number of subcontractors has reduced significantly in all of our major
geographies with the number of subcontractors down almost 20% over the second
half of 2008. In addition, negotiations with subcontractors have led to
significant rate reductions in these services.
We have worked with our European Works Council to agree a set of principles
which will improve the proactive management of our global people resources
including improved bench management, re-skilling our people for high demand
skills and more effective assignment planning. We have also agreed a number of
flexible working schemes that we can use to address overcapacity should market
conditions weaken over the coming months in any of our operations. These
schemes include part paid sabbaticals, reduced hours working and holiday
flexing which will give us further scope to improve utilisation on a geography
by geography basis where necessary. In the first half of 2009, these have
already been successfully implemented in Germany, with around 10% of staff on
reduced hours working and in the Philippines, with around 15% of staff on part
paid sabbaticals. In addition, we are implementing these measures in France,
where around 1% of staff are making use of holiday flexing.
Focus for Growth
In the first half of 2009, we continued to invest in strengthening our sales
capability and made clear investment choices in the Focus for Growth areas to
reflect the changing economic environment. As a result, we have prioritised
investments in outsourcing, consulting and in a number of our "High Growth
Areas".
Deepening and strengthening relationships with key customers is evident in
Outsourcing Services, where almost half of the pipeline is with our 57 key
accounts.
In consulting, whilst we continue to be cautious on recruitment, we have
invested in selected areas where we see synergies with our key accounts. We
continued to make good progress in recruitment of senior consultancy leaders
and now have 44 client lead consultants in place in our 57 key accounts.
In our High Growth Areas we have tested our value propositions in each area
given the changes in demand resulting from the current market environment.
Investments in areas such as alliances, Enterprise Content Management, Service
Oriented Architecture and Business Intelligence, where we have built a strong
pipeline through 2009, will deliver the most significant growth in the short
term. In the first half, we leveraged our Business Intelligence expertise in
the Teliasonera and Total wins. We will continue to invest for longer term
growth in verticals such as Intelligent Transport Systems where we had notable
wins with clients such as Finnair in the first half.
Accelerate Blended Delivery
Given the current economic climate, there has been a slower than expected rate
of headcount growth in our nearshore and offshore centres due to the size of
projects being implemented. Nevertheless, we have seen many European customers
continuing to move towards a blended model and expect our offshore and
nearshore headcount to reach around 25% of total headcount over the medium
term, as economies recover.
Our UK client base continues to be the most aggressive consumer of offshore
resources, with the number of employees deployed onto UK contracts exceeding
the 25% target set for 2009. In all other major geographies, the level of
uptake ranges from 5% to 10%. In the Nordics, our progress is measured by an
increase in both the number of clients and projects deploying a blend in the
delivery of services.
In the first half of 2009, the number of offshore and nearshore employees was
broadly stable at 5,100 (5,000 at December 2008), accounting for c13% of the
total workforce. Efficiency in our offshore and nearshore operations increased
over the first half, with the number of employees on the bench down by around
20%.
One Logica
At the beginning of 2009 we created a centralised global organisation to align
our IT systems and processes across functions such as Finance, HR and Knowledge
Management.
Transformation of our HR and finance functions is well underway. HR functions
have been identified where global processes will be created and implemented in
the second half of 2009 and into 2010. Transforming the Group finance and
administration function will create a structure which will deliver significant
benefits to the Group. Significant opportunities were identified for process
automation with a mix of our blended delivery service, in line with our goal of
transforming finance through a blended operating model.
Operating performance - continuing operations
The basis on which we are reporting revenue and profit has changed to reflect
our new management structure and the prior year comparatives have been restated
below. Germany is now reported within the International segment. Belgium,
previously reported in the International segment, is reported in the Benelux
segment. Outsourcing Services is reported as a separate division from the
beginning of 2009.
Revenue by geography
Growth Growth
H1'09 on H1'09 on
H1'08 H1'08 H1'08 H1'08
H1'09 Pro forma Actual Pro forma Actual
£'m £'m £'m % %
Nordics 519 526 497 (1) 4
France 401 408 354 (2) 13
UK 379 354 354 7 7
Benelux 309 357 309 (13) -
International 268 275 255 (3) 5
Total 1,876 1,920 1,769 (2) 6
First half revenue performance was up 6% on a reported basis with currency
benefits contributing to flat or growing reported revenue in all geographies.
On a pro forma basis, this represented a decline of 2%, in line with guidance.
Strong growth in the UK was offset by declines in other geographies, most
notably in Benelux which remains the most difficult market. In the Nordics,
the expected weakening in IDT in the Swedish business was balanced by strong
growth in Finland, leading to a slight decline overall. In France, revenue
growth was impacted by a fewer number of working days in the first half.
Revenue by sector
Growth Growth
H1'09 on H1'09 on
H1'08 H1'08 H1'08 H1'08
H1'09 Pro forma Actual Pro forma Actual
£'m £'m £'m % %
18
Public Sector 608 550 517 11
Industry, Distribution and Transport 506 564 521 (10) (3)
Energy and Utilities 324 306 282 6 15
Financial Services 283 357 319 (21) (11)
Telecoms and Media 155 143 130 8 19
Total 1,876 1,920 1,769 (2) 6
The profile of our revenue by sector at Group level is naturally affected by
wider market trends. As we had expected, there was weakness in the Financial
Services and IDT sectors, with revenue decline in all geographies, especially
the Benelux. Public Sector, Energy and Utilities and Telecoms delivered good
growth in the first half. In Public Sector, we had growth across all
geographies with the strongest rise being in France and the UK (up 24% and 16%
respectively).
Adjusted operating profit by geography
H1'08
H1'08 Pro forma H1'08
H1'09 H1'09 Pro forma Margin Actual
£'m Margin % £'m % £'m
Nordics 40 7.6 45 8.6 42
France 27 6.8 30 7.3 26
UK 29 7.6 22 6.3 22
Benelux 16 5.2 24 6.6 20
International 15 5.6 9 3.3 8
Total 127 6.8 130 6.8 118
Adjusted operating profit before exceptional items and amortisation of
intangibles initially recognised on acquisition was £127 million.
Adjusted operating margin was unchanged from last year at 6.8%, with strong
improvements in the UK and International. The improvement in adjusted
operating margin in the UK was mainly due to property rationalisation and the
targeted redundancy programme undertaken through 2008 as part of the Programme
for Growth. International benefited from improved margins in the Iberia
business. Margin in Benelux was impacted by lower utilisation and reflects
renegotiations on consulting framework agreements through the first quarter.
Overall pricing reduction in professional services and consulting amounted to
between 2-3% compared to last year, across our major geographies, with the most
significant effect in countries exposed to Financial Services and IDT such as
the Nordics, Benelux and France.
Operating profit by geography
H1'09 H1'09
Adjusted Operating H1'08
operating Amortisation Exceptional profit/ Operating
profit of intangibles items (loss) profit/(loss)
£'m £'m £'m £'m £'m
Nordics 40 28 7 5 8
France 27 14 5 8 12
UK 29 - 14 15 (7)
Benelux 16 - 17 (1) 19
International 15 2 1 12 (3)
Total 127 44 44 39 29
Operating profit was £39 million (2008: £29 million).
Net exceptional items of £44 million (2008: £46 million) were mainly related to
Programme for Growth costs with the remainder of the estimated £61 million
charge for 2009 expected to be incurred in the second half.
Amortisation of intangible assets from acquisitions was £44 million (2008: £43
million).
Outsourcing Services
Growth Growth
H1'09 on H1'09 on
H1'08 H1'08 H1'08 H1'08
H1'09 Pro forma Actual Pro forma Actual
£'m £'m £'m % %
Outsourcing revenue 681 617 550 10 24
Other revenue 1,195 1,303 1,219 (8) (2)
Total Group revenue 1,876 1,920 1,769 (2) 6
H1'08
H1'09 Pro forma
Revenue from Revenue from H1'09
outsourcing outsourcing Outsourcing as % of total
£'m £'m country revenue
Nordics 190 169 37
France 149 135 37
UK 186 158 49
Benelux 64 69 21
International 92 86 34
Total Outsourcing 681 617 36
Services
Strong growth in Outsourcing Services continued to compensate for lower revenue
in consulting and professional services. Outsourcing Services revenue was up
10% to £681 million and represented 36% of Group revenue, exceeding the Group
target of 35% set in 2008. The Nordics, France and the UK continue to be the
geographies with the strongest percentage of revenue from outsourcing.
H1'09 H1'08
Pro forma
H1'09 adjusted operating profit £'m 44 37
H1'09 adjusted operating margin % 6.5 6.0
Adjusted operating profit was £44 million, giving an adjusted operating margin
of 6.5%, up 0.5%, reflecting increasing efficiency and improved contract
management.
H1'08 H1'08
H1'09 Orders H1'09 Revenue
Orders Pro forma Revenue Pro forma
£'m £'m £'m £'m
Applications Management (AM) 367 295 325 280
Infrastructure Management (IM) 341 295 294 287
Business Process Outsourcing (BPO) 74 71 62 50
Total Outsourcing Services 782 661 681 617
Book to bill 115% 107%
Applications Management represented 48% of first half revenue. Infrastructure
Management represented 43%, with BPO at 9%.
Book to bill for the first half was 115%. The most significant contributors to
order backlog in the first half were TeliaSonera and the UK's Police National
Database. Other significant wins included Finnair and Airbus. In the BPO
area, we strengthened our presence in delivering HR as a service with first
half wins at Channel 4 and Ford, following on from our BPO payroll contract win
with PricewaterhouseCoopers last year.
While many deals are taking slightly longer to close, the volume of
opportunities remains high. The number and size of deals in the pipeline has
increased dramatically with a 30% increase in value since the beginning of the
year and a 70% increase since September 2008. The strongest contribution is
from the UK Public Sector where we continue to see opportunities around
transformation and cost reduction programmes within government departments and
opportunities in the security and crime areas.
Review of continuing operations by geography
Nordics
Growth Growth
H1'09 on H1'09 on
Revenue by market sector H1'08 H1'08 H1'08 H1'08
H1'09 Pro forma Actual Pro forma Actual
£'m £'m £'m % %
Public Sector 182 172 161 6 13
Industry, Distribution and 210 221 212 (5) (1)
Transport
Other sectors 127 133 124 (5) 2
Total 519 526 497 (1) 4
Outsourcing (%) 37 32
Adjusted operating profit (£'m) 40 45
Adjusted operating margin (%) 7.6 8.6
Book to bill for the period was 124% (2008: 114%). The pipeline is improving
due to an increased level of outsourcing opportunities in all industry sectors.
Revenue was down 1% on a pro forma basis to £519 million. The Finnish business
delivered a strong performance on revenue, outperforming weak GDP. However,
the expected weakness in IDT in the Swedish business led to a small decline in
Nordics revenue. Adjusted operating profit was £40 million giving an adjusted
operating margin of 7.6%.
There was strong growth in Public Sector revenue with the most significant
growth in Finland. Strong order intake in the Swedish Public Sector in the
second half of 2008 had a positive effect on revenue in the first half of
2009.
The Nordics market remains competitive with pricing pressure and reduced
spending on consulting and SI projects due to customer focus on cost reduction
programmes. To respond to weakness in Sweden, we have taken action to reduce
headcount and replaced subcontractors with our own staff, resulting in strong
utilisation.
The percentage of revenue from outsourcing has grown across all geographies in
the Nordics. We won a number of significant contracts in the first half
including TeliaSonera, Neste Oil and the Swedish Defence Material
Administration (FMV) and began delivering revenue under the TeliaSonera project
in the second quarter.
Under the Programme for Growth, cost savings as well as overhead cost reduction
which included transitioning some non-billable staff to billable roles will
contribute to margin improvement in the second half. We are also transitioning
offshore more customer application and infrastructure management business as
well as our own product development and maintenance activities.
France
Growth Growth
H1'09 on H1'09 on
Revenue by market sector H1'08 H1'08 H1'08 H1'08
H1'09 Pro forma Actual Pro forma Actual
£'m £'m £'m % %
Industry, Distribution and Transport 143 158 137 (9) 4
Financial Services 101 110 96 (8) 5
Other sectors 157 140 121 12 30
Total 401 408 354 (2) 13
Outsourcing (%) 37 33
Adjusted operating profit (£'m) 27 30
Adjusted operating margin (%) 6.8 7.3
Book to bill in the first half was very strong at 124% (2008: 106%) with an
improvement in the pipeline as we enter the second half. We continued to see
blended delivery wins with French customers, supported out of our facilities in
India and Morocco (where we now have a total of 500 employees). Order intake
included wins in several sectors: an infrastructure management win with Crédit
Agricole subsidiary Silca, an application management win with National Health
Insurance Agency (CNAMTS) and implementation of an Oracle project with SFR's
subsidiary SRR.
Revenue was down 2% on a pro forma basis to £401 million, impacted by a fewer
number of working days in the first half. Adjusted operating profit was £27
million, giving an adjusted operating margin of 6.8%.
Strong growth in Energy and Utilities and Public Sector was offset by weakness
in other sectors with revenue in IDT impacted by a weakening economic
environment. As expected, Financial Services is the most challenging sector
although activity in the insurance sector was more encouraging.
The adjusted operating margin was impacted by the fewer number of working days
in the first half. Improved utilisation, focus on cost management and a
significant reduction in the level of subcontractors will help to protect
margins in the second half.
UK
Growth Growth
H1'09 on H1'09 on
Revenue by market sector H1'08 H1'08 H1'08 H1'08
H1'09 Pro forma Actual Pro forma Actual
£'m £'m £'m % %
Public Sector 233 201 201 16 16
Energy and Utilities 55 57 57 (4) (4)
Other sectors 91 96 96 (5) (5)
Total 379 354 354 7 7
Outsourcing (%) 49 45
Adjusted operating profit (£'m) 29 22
Adjusted operating margin (%) 7.6 6.3
Book to bill was in line with 2008 at 97% (2008: 98%) and contributed to a good
order backlog. Significant wins in the first half included a 7 year, £76.5
million contract to design, build and operate the UK's Police National Database
and a £12 million five year outsourcing contract with The Law Society to
deliver support services through a blended onshore and offshore delivery model.
The pipeline of opportunities is up significantly with second half order
intake dependant on timing of outsourcing projects.
The UK business delivered strong revenue growth, up 7% to £379 million.
Adjusted operating profit was £29 million, resulting in an improvement in the
adjusted operating margin to 7.6%.
Public Sector revenue was up 16% and represented 61% of UK revenue in the first
half. The Public Sector benefited from the implementation of a number of major
programmes and double digit growth with customers in space and defence.
Revenue in the Energy and Utilities sector, while slowing against a strong
2008, continued to be driven by delivery against ongoing projects with existing
customers. As expected, revenue declined in Financial Services and IDT, given
that most of the work delivered in these sectors is in the less resilient area
of professional services. This was offset by a 75% increase in
Telecommunications as we implemented a major contract in the sector. Financial
Services continued to be our most challenging sector, down 55% in the first
half.
The improvement in adjusted operating margin was mainly due to the property
rationalisation and targeted redundancy programme undertaken through 2008 as
part of the Programme for Growth. Pricing impact was limited as we took
opportunities to revise and extend service contracts with our customers.
Benelux
Growth Growth
H1'09 on H1'09 on
Revenue by market sector H1'08 H1'08 H1'08 H1'08
H1'09 Pro forma Actual Pro forma Actual
£'m £'m £'m % %
Public Sector 111 109 95 2 17
Industry, Distribution and 58 73 63 (21) (8)
Transport
Financial Services 76 111 97 (32) (22)
Other sectors 64 64 54 - 19
Total 309 357 309 (13) -
Outsourcing (%) 21 19
Adjusted operating profit (£'m) 16 24
Adjusted operating margin (%) 5.2 6.6
Book to bill was 87% (2008: 94%) reflecting delays in decision making in a
market heavily weighted to non-outsourcing business.
Revenue was down 13% to £309 million, reflecting our exposure to financial
services and continued weakness in the Dutch economy. Adjusted operating
profit was £16 million, resulting in an adjusted operating margin of 5.2%.
In the first quarter, customers significantly reduced their IT spend and
implemented restructuring and cost reduction programmes, particularly under
consulting framework agreements. However, the market showed signs of
stabilising through the second quarter. The Financial Services, Telecoms and
IDT sectors continued to decline compared to slight growth in Public Sector and
Energy and Utilities.
Adjusted operating margin was impacted by lower utilisation and a competitive
pricing environment. We have taken decisive action to respond to the
challenging market in the Netherlands. Implementation of a consistent
operational model and new management structure enabled us to significantly
lower our cost levels. As previously communicated, 300 employees exited the
business under redundancy programmes in the first half of 2009, of which
approximately two-thirds were non-billable. The natural level of employee churn
due to attrition and concerted action on subcontractors is also contributing to
a lower cost base which will result in an improvement in second half margin.
Utilisation is expected to improve as the new organisational model beds down in
the second half and the market continues to stabilise.
International
Growth Growth
H1'09 on H1'09 on
Revenue by area H1'08 H1'08 H1'08 H1'08
H1'09 Pro forma Actual Pro forma Actual
£'m £'m £'m % %
Rest of Europe 171 179 168 (4) 2
Rest of World 97 96 87 1 11
Total 268 275 255 (3) 5
Growth Growth
H1'09 on H1'09 on
Revenue by market sector H1'08 H1'08 H1'08 H1'08
H1'09 Pro forma Actual Pro forma Actual
£'m £'m £'m % %
Industry, Distribution and Transport 51 65 63 (22) (19)
Energy and Utilities 129 120 111 7 16
Financial Services 36 45 41 (20) (12)
Other sectors 52 45 40 16 30
Total 268 275 255 (3) 5
Outsourcing (%) 34 31
Adjusted operating profit (£'m) 15 9
Adjusted operating margin (%) 5.6 3.3
Book to bill was 113% (2008: 108%). We made good progress in outsourcing,
winning a 3 year application management contract with Airbus by leveraging our
delivery blended model from centres in Germany, France and India.
Revenue for the six months was down 3% to £268 million. Growth in Public
Sector, Energy and Utilities and Telecommunications was offset by weakness in
Financial Services and IDT. Adjusted operating profit was £15 million, giving
an adjusted operating margin of 5.6%.
Revenue in the Rest of Europe, which accounted for 64% of International
revenue, declined by 4% with the decline in Germany partly offset by growth in
central Europe. Germany and Iberia are the largest geographies in this
segment, representing 55% and 31% respectively. Revenue in Germany declined by
8% where strong growth in Public Sector and Telecommunications was offset by
weakness in other sectors. Revenue in Portugal was stable on the back of
Energy and Utilities, which is the major contributor to Portuguese revenue. In
the Rest of World, our business in the Americas was the strongest performer,
primarily as a result of 2008 contract wins.
The significant improvement in adjusted operating profit and margin was mainly
due to the focus on cost management in the German, Portuguese and Australian
businesses and a weak 2008 comparative. Given the decline in the German
business in the first half, we have taken action to reduce working hours which
should help our margins in the second half.
Financial position
Summary cash flow H1'09 H1'08
£'m £'m
Adjusted operating profit 127 118
Depreciation and amortisation of intangibles not recognised on 28 26
acquisition
Movement in working capital (63) (51)
Other non-cash movements 1 5
Net cash inflow from continuing operations 93 98
Cash conversion 73% 83%
Cash outflow related to restructuring:
- Programme for growth (31) (6)
- Integration, prior years restructuring & disposal costs - (8)
Net financing cost paid (18) (11)
Income tax paid (26) 13
Capex less disposals of property, plant & equipment and intangible (28) (31)
assets
Impact of acquisitions and disposals (47) (49)
Dividends paid to shareholders (9) (50)
Exchange differences 61 (41)
Other (14) 3
Opening net debt (438) (483)
Closing net debt (457) (565)
While we had a working capital outflow of £63 million compared to £51 million
in the first half of 2008, this masked continued focus on collections. The net
cash inflow from trading operations was £93 million (2008: £98 million),
leading to cash conversion at 73% (2008: 83%).
One off items included exceptionals cash outflow of £31 million (2008: £14
million) and a total cash outflow of £48 million related to the acquisition of
the remaining 4.67% of the WM-data minority interest.
Net finance cost paid was £18 million (2008: £11 million). We now expect full
year finance costs to be around £32 million.
Payment in respect of the second half 2008 dividend was £9 million (2008: £50
million).
Group net debt at 30 June 2009 was £457 million (H1 2008: £565 million and FY
2008: £438 million), leading to net debt/EBITDA of 1.3x. We now expect net
debt/EBITDA to be below 1.2x at the end of 2009.
Through the period, we have strengthened Logica's access to financing
facilities. Total facilities are now £835 million. This results from a small
increase under Logica's principal bank facilities announced in November 2008
and a new £100 million receivables-backed financing agreement signed in July
2009. Under a new forward starting agreement with one of its relationship
banks, Logica will also have access to an additional €50 million of financing
from September 2010.
Profit before tax and earnings per share
Profit before tax was £24 million (2008: £13 million). Basic adjusted earnings
per share from continuing operations were 5.5p (2008: 5.4p) on a weighted
average number of shares of 1,585 million (2008: 1,446 million). Basic
earnings per share from continuing operations were 1.3p (2008: 0.4p).
Taxation
The effective tax rate, before exceptional items and amortisation of intangible
assets initially recognised on acquisition, was 23% (2008: 23%). The total tax
charge for the first half was £3 million (2008: £7 million). The effective tax
rate for 2009 is expected to remain at around 23%.
Dividend
The directors have declared an interim dividend of 1.0 pence to be paid on 16
October 2009 to eligible shareholders on the register at the close of business
on 18 September 2009. It is expected that the 2009 dividend will be maintained
at a level of around 3p, with progressive increases in the dividend thereafter.
Board changes
As previously announced, non-executive director Roger Payne will retire at the
Annual General Meeting in May 2010, after six years on the Logica Board.
Roger's successor as Chairman of the Audit Committee will be announced in due
course.
Having joined the Logica Board as a non-executive director on 24 February 2009,
Sergio Giacoletto took on the role of senior independent director from 30
April 2009.
Next financial calendar dates
Logica's next scheduled communications to the market are:
Wednesday 4 November 2009 Q3 2009 Interim Management Statement
Wednesday 24 February 2010 FY 2009 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 66 and 67 of the 2008 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 2008 are listed in the Group's 2008
Annual Report. A current list of directors is also maintained on the Group's
website: www.logica.com
By order of the Board
Andy Green Seamus Keating
Chief Executive Officer Chief Financial Officer
6 August 2009
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 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 2008 which:
reflect average 2009 exchange rates by retranslating prior period actual
numbers at average 2009 exchange rates. This increased H1'08 revenue by £163
million and adjusted operating profit by £11 million.
are adjusted to include the acquisitions and exclude disposals that took place
during 2009 by adjusting the actual prior period numbers for the relevant
period owned. This decreased H1'08 revenue by £12 million and increased
adjusted operating profit by £1 million.
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 '08 Pro
H1 Pro H1 '08 forma Actual
'09 forma Actual growth growth
£'m £'m £'m % %
Operating profit 39 29 34%
Add back impact of:
Exceptional items 44 46
Amortisation of acquisition related
intangibles 44 43
Adjusted operating profit 127 130 118 (2) 8%
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 '09 H1 '08 H2 '08 FY '08
£1 / €
Average 1.12 1.29 1.21 1.25
End of period 1.17 1.26 1.03 1.03
£1 / SEK
Average 12.16 12.11 12.05 12.08
End of period 12.76 11.97 11.37 11.37
Consolidated statement of comprehensive income (unaudited)
Six months Six months
ended ended
30 June 30 June
2009 2008
Note £'m £'m
Revenue 2 1,876.1 1,769.4
Net operating costs (1,837.5) (1,740.4)
Operating profit 2,4 38.6 29.0
Analysed as:
Operating profit before exceptional items 82.6 74.6
Exceptional items 3 (44.0) (45.6)
Operating profit 2,4 38.6 29.0
Finance costs (19.1) (22.3)
Finance income 4.3 5.5
Share of post-tax profits from associates 0.4 0.4
Profit before tax 24.2 12.6
Taxation 6 (3.0) (6.5)
Net profit for the period 21.2 6.1
Other comprehensive income
Exchange differences on translation of (196.7) 109.9
foreign operations
Actuarial losses on defined benefit plans (67.6) (3.2)
Tax on items taken directly to equity 17.8 1.7
Other comprehensive income for the period, (246.5) 108.4
net of tax
Total comprehensive income for the period (225.3) 114.5
Profit attributable to:
Owners of the parent 21.2 5.2
Minority interest - 0.9
21.2 6.1
Total comprehensive income attributable
to:
Owners of the parent (224.2) 111.8
Minority interests (1.1) 2.7
(225.3) 114.5
Earnings per share p p
/ share / share
- Basic 7 1.3 0.4
- Diluted 7 1.3 0.4
Dividends recognised in the period amounted to £9.5 million (six months ended
30 June 2008: £50.5 million), or 0.60p per share (six months ended 30 June
2008: 3.5p per share). The interim dividend declared but not recognised in
these interim financial statements is 1.0p per share (six months ended 30 June
2008: 2.4p per share) or approximately £15.9 million (six months ended 30 June
2008: £34.8 million).
The notes on pages 22 to 30 form an integral part of this interim financial
information.
Consolidated statement of financial position (unaudited)
30 June 31 December 30 June
2009 2008 2008
Note £'m £'m £'m
Non-current assets
Goodwill 1,823.1 1,994.2 1,735.4
Other intangible assets 277.1 354.4 352.9
Property, plant and equipment 8 131.8 149.0 130.2
Investments in associates 2.4 3.0 2.2
Financial assets 12.1 13.8 12.0
Retirement benefit assets 19.6 62.1 20.9
Deferred tax assets 63.4 59.1 47.8
Total non-current assets 2,329.5 2,635.6 2,301.4
Current assets
Inventories 0.7 0.7 1.8
Trade and other receivables 1,172.2 1,365.7 1,180.4
Current tax assets 14.4 16.7 8.0
Cash and cash equivalents 61.2 126.9 88.2
Total current assets 1,248.5 1,510.0 1,278.4
Current liabilities
Convertible debt - - (242.1)
Other borrowings (17.9) (10.7) (113.3)
Trade and other payables (935.4) (1,196.6) (966.7)
Current tax liabilities (47.1) (62.1) (51.3)
Provisions 9 (48.9) (36.4) (26.1)
Total current liabilities (1,049.3) (1,305.8) (1,399.5)
Net current assets / (liabilities) 199.2 204.2 (121.1)
Total assets less current liabilities 2,528.7 2,839.8 2,180.3
Non-current liabilities
Borrowings (500.7) (554.3) (297.4)
Retirement benefit obligations (87.9) (63.2) (63.3)
Deferred tax liabilities (84.7) (119.3) (115.4)
Provisions 9 (42.1) (47.1) (26.3)
Other non-current liabilities (1.0) (1.0) (0.9)
Total non-current liabilities (716.4) (784.9) (503.3)
Net assets 1,812.3 2,054.9 1,677.0
Equity
Share capital 10 160.0 159.8 146.2
Share premium account 11 1,101.5 1,101.5 1,100.4
Reserves 550.7 780.2 417.9
Total shareholders' equity 1,812.2 2,041.5 1,664.5
Minority interests 0.1 13.4 12.5
Total equity 1,812.3 2,054.9 1,677.0
The notes on pages 22 to 30 form an integral part of this interim financial
information.
Consolidated statement of cash flow (unaudited)
Six Six
months months
ended ended
30 June 30 June
2009 2008
Note £'m £'m
Cash flows from operating activities
Net cash inflow from trading operations 12 93.1 97.8
Cash outflow related to restructuring and integration 12 (31.5) (13.8)
activities
Cash generated from operations 12 61.6 84.0
Finance costs paid (19.2) (14.6)
Income tax (paid) / received (26.0) 13.1
Net cash inflow from operating activities 16.4 82.5
Cash flows from investing activities
Finance income received 1.7 4.0
Dividends received from associates 0.7 0.7
Proceeds on disposal of property, plant and equipment 0.1 0.1
Purchases of property, plant and equipment (17.6) (18.4)
Expenditure on intangible assets (10.5) (12.3)
Purchase of minority interests (47.8) (42.1)
Acquisition of subsidiaries and other businesses, net of - (2.0)
cash acquired
Disposal costs of prior year disposals - (7.4)
Disposal of subsidiaries and other businesses, net of cash 0.5 2.3
disposed
Net cash outflow from investing activities (72.9) (75.1)
Cash flows from financing activities
Proceeds from issue of new shares - 1.9
Proceeds from bank borrowings 18.4 51.7
Repayments of bank borrowings (0.5) (34.4)
Repayments of finance lease principal (2.2) (2.1)
Repayments of other borrowings (0.8) -
(Payments) / proceeds from forward contracts (12.3) 7.7
Dividends paid to the Company's shareholders (9.5) (50.5)
Net cash outflow from financing activities (6.9) (25.7)
Net decrease in cash, cash equivalents and bank overdrafts (63.4) (18.3)
Cash, cash equivalents and bank overdrafts at the beginning 13 121.5 99.6
of the period
Net decrease in cash, cash equivalents and bank overdrafts 13 (63.4) (18.3)
Effect of foreign exchange rates 13 (5.9) 5.8
Cash, cash equivalents and bank overdrafts at the end of the 13 52.2 87.1
period
The notes on pages 22 to 30 form an integral part of this interim financial
information.
Consolidated statement of changes in equity (unaudited)
Share Share Retained Translation Merger Other Minority
capital premium earnings reserve reserve reserve interest Total
£'m £'m £'m £'m £'m £'m £'m £'m
At 1 January 159.8 1,101.5 (349.2) 462.5 696.6 (29.7) 13.4 2,054.9
2009
Net profit - - 21.2 - - - - 21.2
for the year
Other
comprehensive
income:
Actuarial - - (67.6) - - - - (67.6)
losses
Tax on items - - 17.8 - - - - 17.8
taken to
equity
Transfer of - - 75.9 - (75.9) - - -
realised
reserve
Exchange - - - (197.6) - 2.0 (1.1) (196.7)
differences
Total - - 47.3 (197.6) (75.9) 2.0 (1.1) (225.3)
comprehensive
income
Transactions
with owners:
Dividends - - (9.5) - - - - (9.5)
paid
Share-based - - 4.6 - - - - 4.6
payment
Shares issued 0.2 - (0.2) - - - - -
Minority - - - - - - (12.2) (12.2)
repurchases
Other - - (0.2) - - - - (0.2)
At 30 June 160.0 1,101.5 (307.2) 264.9 620.7 (27.7) 0.1 1,812.3
2009
At 1 January 145.8 1,098.9 (336.2) 93.9 619.0 (24.4) 28.3 1,625.3
2008
Net profit - - 5.2 - - - 0.9 6.1
for the year
Other
comprehensive
income:
Actuarial - - (3.2) - - - - (3.2)
losses
Tax on items - - 1.7 - - - - 1.7
taken to
equity
Exchange - - - 107.9 - 0.2 1.8 109.9
differences
Total - - 3.7 107.9 - 0.2 2.7 114.5
comprehensive
income
Transactions
with owners:
Dividends - - (50.5) - - - - (50.5)
paid
Share-based - - 5.0 - - - - 5.0
payment
Shares issued 0.4 1.5 - - - - - 1.9
Minority - - - - - - (20.6) (20.6)
repurchases
Other - - (2.1) - 1.4 - 2.1 1.4
At 30 June 146.2 1,100.4 (380.1) 201.8 620.4 (24.2) 12.5 1,677.0
2008
Note 10 11
The notes on pages 22 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 June
2009 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 2008, which have been prepared in
accordance with IFRSs as adopted by the European Union, and the consolidated
interim financial information should be read in conjunction with the annual
financial statements.
(a) The following standards, interpretations, and amendments to standards were
effective during the period to 30 June 2009 and have been adopted in this
interim financial information:
IFRS 8 'Operating Segments' - The standard replaced IAS 14 'Segment
Reporting', and aligns operating segments reported to those segments reported
internally to senior management. The basis for the segments under IFRS 8 is
set out in note 2 below. The standard does not change the recognition,
measurement, or disclosure of transactions in the consolidated financial
statements.
IAS 1 R 'Presentation of financial statements' - The amendment requires
"non-owner" and "owner" changes in equity to be presented separately. It also
requires that where a balance sheet is restated that the opening balance sheet
is also disclosed. This will mean that where restatement occurs that three
columns rather than two will be reported. Entities can also choose whether to
present one or two performance statements. The Group has chosen to present one
performance statement. A further impact of the amendment is that the primary
statements have been renamed.
IFRS 2 (Amendment), 'Share-based payment', effective for accounting periods
beginning on or after 1 January 2009. The amendment to the standard limits
vesting conditions to service conditions and performance conditions. The
amendment also specifies that all cancellations, whether by the entity or by
other parties, should receive the same accounting treatment, i.e. acceleration
of the expense based on the grant date fair value. This amendment had no
material impact on the Group's consolidated interim financial statements.
(b) The following standards, interpretations, and amendments to standards were
effective during the period to 30 June 2009, but had no material impact on this
consolidated interim financial information:
Amendments issued as part of annual improvements to IFRSs (May 2008).
IFRIC 13, 'Customer loyalty programmes'.
IFRIC 15 'Agreements for the construction of real estates'.
IFRIC 16, 'Hedges of a net investment in a foreign operation'.
IAS 23 R 'Borrowing costs' - the amendment requires that borrowing costs
incurred in the construction and production of qualifying assets commenced
after 1 January 2009 are capitalised.
(c) The following standards, interpretations, and amendments to existing
standards are not yet effective and have not been early adopted by the Group:
IFRS 3 (Revised), 'Business combinations'- effective for the Group from 1
January 2010. The revised standard requires that all acquisition-related costs
are to be expensed to the income statement in the period incurred.
Furthermore, purchase accounting only applies at the point when control is
achieved.
IAS 27 (Revised), 'Consolidated and Separate Financial Statements', effective
for the Group for accounting periods beginning on or after 1 July 2009. The
revised standard requires that acquisitions and disposals that do not result in
a change of control are accounted for within equity. Any difference between
the change in the minority interest and the fair value of the consideration
paid or received is recognised directly in equity and attributed to the owners
of the parent.
(d) The following standards, interpretations, and amendments to existing
standards are not yet effective, have not yet been endorsed by the EU and have
not been early adopted by the Group:
Amendments issued as part of annual improvements to IFRSs (April 2009),
including IFRIC 18.
IFRIC 17 'Distributions of non-cash assets to owners'. Applies for periods
beginning on or after 1 July 2009; clarifies the accounting where assets other
than cash are distributed to shareholders
IAS 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 or
after 1 July 2009, amended to clarify how existing principles should be applied
in respect of 'a one sided risk in a hedged item' and 'inflation in a financial
hedged item'. Inflation risk can only be hedged if contractually specified and
it is possible to used purchased options as a hedging instrument.
IAS 39 'Financial Instruments: Recognition and Measurement, effective on or
after 30 June 2009, amended to clarify the treatment of embedded derivatives
where transactions are reclassified from Fair Value Through Profit or Loss
(FVTPL). Where transactions are reclassified embedded derivatives may need to
be separated from the host and continue to be treated as FVTPL.
Selected notes to the consolidated interim financial information (continued)
1. Accounting policies and basis of preparation (continued)
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 2008, which were prepared under International
Financial Reporting Standards, have been filed with the Registrar of
Companies. The auditors' report on those accounts was unqualified and did not
contain a statement under section 237(2) and 237(3) of the Companies Act 1985.
The most important foreign currencies for the Group are the euro and the
Swedish Krona. The relevant exchange rates to pounds sterling were:
30 June 2009 30 June 2008
Average Closing Average Closing
£1 = € 1.12 1.17 1.29 1.26
£1 = SEK 12.16 12.76 12.11 11.97
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. Logica 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. The operating segments have not changed as a result of implementing
IFRS 8. However, during the current period Logica has consolidated the German
business into the International segment, which has resulted in reclassification
of £101.4 million of revenue, £2.1 million of operating loss and £3.6 million
of adjusted operating profit (note 4) relating to six months ended 30 June 2008
from Germany to the International segment. Also, the Netherlands and Belgium
businesses were consolidated into a newly created Benelux segment, which has
resulted in a reclassification of £25.8 million of revenue, £0.8 million of
operating loss and £0.8 million of adjusted operating loss (note 4) relating to
six months ended 30 June 2008 from the International to the Benelux segment.
Logica is organised into five operating segments based on the location of
assets.
Revenue Operating profit/ (loss)
Six Six months Six Six months
months months
ended ended ended ended
30 June 30 June 2008 30 June 30 June
2009 2009 2008
£'m £'m £'m £'m
Nordics 518.5 496.9 5.3 7.7
France 401.5 354.3 8.3 11.9
United Kingdom 379.1 353.4 14.9 (7.1)
Benelux 308.8 309.7 (1.4) 19.2
International 268.2 255.1 11.5 (2.7)
Revenue and operating profit 1,876.1 1,769.4 38.6 29.0
Finance costs (19.1) (22.3)
Finance income 4.3 5.5
Share of post-tax profits 0.4 0.4
from associates
Taxation (3.0) (6.5)
Profit after tax 21.2 6.1
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 2009 30 June 2008
£'m £'m
Restructuring costs (44.6) (41.0)
Integration costs - (4.9)
Profit on disposal of business 0.6 0.3
(44.0) (45.6)
During the six months ended 30 June 2009, the Group incurred a charge of £44.6
million relating to the restructuring of the business following the Group's
business review (2008: £41.0 million). The restructuring comprised costs
associated with the closure of offices in the UK and France, and redundancy of
staff across the Group, primarily in the Netherlands.
This year, the Group also completed the disposals of its two non-core German
businesses, 'Integrata AG' and 'Cocq Datendienste GmbH'; generating a profit of
£0.6 million.
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
2009 2008
£'m £'m
Operating profit 38.6 29.0
Exceptional items 44.0 45.6
Amortisation of intangible assets initially recognised on 44.1 43.5
acquisition
Adjusted operating profit 126.7 118.1
Adjusted operating profit analysis per operating segment was as follows:
Six months ended 30 June 2009
Operating Exceptional Amortisation Adjusted
profit/ (loss) items of operating profit
intangibles*
£'m £'m £'m £'m
Nordics 5.3 6.8 27.3 39.4
France 8.3 4.7 14.4 27.4
United 14.9 13.9 - 28.8
Kingdom
Benelux (1.4) 17.4 - 16.0
International 11.5 1.2 2.4 15.1
44.1 126.7
38.6 44.0
* Amortisation of intangible assets initially recognised on acquisition.
Selected notes to the consolidated interim financial information (continued)
4. Adjusted operating profit (continued)
Six months ended 30 June 2008
Operating Exceptional Amortisation Adjusted
profit/ (loss) items of intangibles* operating
profit
£'m £'m £'m £'m
Nordics 7.7 5.8 28.4 41.9
France 11.9 1.2 12.6 25.7
United (7.1) 29.2 - 22.1
Kingdom
Benelux 19.2 1.3 - 20.5
International (2.7) 8.1 2.5 7.9
29.0 45.6 43.5 118.1
* Amortisation of intangible assets initially recognised on acquisition.
Employees
Six months Six months
ended ended
30 June 2009 30 June 2008
The average number of employees during the period was: Number Number
Nordics 9,754 9,697
France 9,041 9,058
United Kingdom 5,400 5,589
Benelux 6,060 6,486
International 9,575 8,228
39,830 39,058
Six months Six months
ended ended
30 June 2009 30 June 2008
The number of employees at the end of the period was: Number Number
Nordics 9,791 9,795
France 8,920 8,979
United Kingdom 5,385 5,536
Benelux 5,870 6,444
International 9,559 8,447
39,525 39,201
Taxation
The tax charge on continuing operations for the six months ended 30 June 2009,
before exceptional items is £13.2 million (19.4 % effective tax rate) (six
months ended 30 June 2008: £11.1 million (19.2% effective tax rate)) and has
been based on an estimated effective tax rate for the full year excluding the
impact of any exceptional items.
The effective tax rate on operations for the six months ended 30 June 2009,
before exceptional items and amortisation of intangible assets initially
recognised on acquisition, is 22.8% (30 June 2008: 23.0%).
The total tax charge for the six months ended 30 June 2009 is £3.0 million (six
months ended 30 June 2008: £6.5 million) of which a tax credit of £22.6 million
(six months ended 30 June 2008: £16.8 million) relates to exceptional items and
amortisation of intangible assets initially recognised on acquisition.
The tax charge includes an overseas charge of £1.8 million (six months ended 30
June 2008: £8.5 million).
Selected notes to the consolidated interim financial information (continued)
7. Earnings per share
Six months ended 30 June 2009
Weighted
average Earnings
Earnings number per
of shares share
Earnings per share £'m Million Pence
Profit for the period 21.2
Minority interests -
Earnings attributable to ordinary shareholders 21.2 1,585.1 1.3
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)
7.Earnings per share (continued)
Six months ended 30 June 2008
Weighted
average Earnings
Earnings number per
of share
shares
Earnings per share £'m Million Pence
Profit for the period 6.1
Minority interests (0.9)
Earnings attributable to ordinary shareholders 5.2 1,445.5 0.4
Basic EPS 5.2 1,445.5 0.4
Effect of share options and share awards - 14.7 -
Diluted EPS 5.2 1,460.2 0.4
Adjusted earnings per share
Earnings attributable to ordinary shareholders 5.2 1,445.5 0.4
Add back:
Exceptional items, net of tax 41.0 - 2.8
Mark-to-market gain on convertible bonds designated at
fair value through profit or loss, net of tax 0.9 - 0.1
Amortisation of intangible assets initially recognised
on acquisition, net of tax 31.3 - 2.1
Basic adjusted EPS 78.4 1,445.5 5.4
Effect of share options and share awards - 14.7 -
Effect of convertible bonds, excluding mark-to-market
gain, net of tax 2.4 64.6 (0.1)
Diluted adjusted EPS 80.8 1,524.8 5.3
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.
The convertible bonds were not included in the calculation of diluted earnings
per share for the six months ended 30 June 2008 as they were anti-dilutive;
however, the convertible bonds were dilutive for the purposes of calculating
adjusted diluted earnings per share for the six months ended 30 June 2008.
Continuing and total operations were equal for the six months ended 30 June
2009 and 30 June 2008.
Selected notes to the consolidated interim financial information (continued)
Capital expenditure
Additions to property, plant and equipment during the six months ended 30 June
2009 amounted to £18.4 million (six months ended 30 June 2008: £20.2 million).
The net book value of property, plant and equipment disposed during the six
months ended 30 June 2009 amounted to £0.9 million (six months ended 30 June
2008: £0.8 million).
Provisions
Vacant
properties Restructuring Other Total
£'m £'m £'m £'m
At 1 January 2009 43.9 24.3 15.3 83.5
Charged in the period 13.7 30.8 0.1 44.6
Utilised in the period (8.7) (22.9) (0.6) (32.2)
Unused amounts reversed in the period 0.0 (0.3) 0.0 (0.3)
Unwinding of discount 0.9 0.0 0.0 0.9
Exchange differences (1.1) (2.9) (1.5) (5.5)
At 30 June 2009 48.7 29.0 13.3 91.0
Analysed as:
Current liabilities 48.9
Non-current liabilities 42.1
91.0
Share capital of Logica plc
30 30
June June
2009 2008
Authorised £'m £'m
2,250,000,000 (30 June 2008: 2,250,000,000) ordinary 225.0 225.0
shares of 10p each
2009 2008
Allotted, called-up and fully paid Number £'m Number £'m
At 1 January 1,598,359,521 159.8 1,457,646,079 145.8
Allotted under share option schemes 1,825,183 0.2 4,350,931 0.4
At 30 June 1,600,184,704 160.0 1,461,997,010 146.2
On 16 December 2008 the Company issued 135,000,000 ordinary shares at a price
of 67 pence per share with a nominal value of £13.5 million, for gross
consideration of £90.5 million via a cash box structure. No share premium was
recognised as the Company has taken advantage of section 131 of the Companies
Act 1985 regarding merger relief.
Selected notes to the consolidated interim financial information (continued)
Share premium
2009 2008
£'m £'m
At 1 January 1,101.5 1,098.9
Premium on shares allotted under share - 1.5
option schemes
At 30 June 1,101.5 1,100.4
12. Reconciliation of operating profit to cash generated from operations
Six Six
months months
ended ended
30 June 30 June
2009 2008
£'m £'m
Operating profit:
Continuing operations 38.6 29.0
Adjustments for:
Share-based payments 4.8 5.2
Depreciation of property, plant and equipment 22.4 19.8
Loss on disposal of non-current assets 0.4 0.5
Profit on sale of subsidiaries and other businesses (0.6) (0.3)
Amortisation of intangible assets 49.5 49.5
Impairment of property, plant and equipment included in restructuring costs - 9.1
Non-cash element of expense for defined benefit plans (2.3) (1.9)
74.2 81.9
Net movements in provisions 11.4 24.1
Movements in working capital:
Financial assets 0.5 -
Inventories (0.1) (0.3)
Trade and other receivables 51.7 (102.2)
Trade and other payables (114.7) 51.5
(62.6) (51.0)
Cash generated from operations 61.6 84.0
Add back: Cash outflow related to restructuring and integration activities 31.5 13.8
Net cash inflow from trading operations 93.1 97.8
13. Reconciliation of movements in net debt
At Other At
1 January non-cash Exchange 30 June
2009 Cash flows movements differences 2009
£'m £'m £'m £'m £'m
Cash and cash
equivalents 126.9 (59.0) - (6.7) 61.2
Bank overdrafts (5.4) (4.4) - 0.8 (9.0)
121.5 (63.4) - (5.9) 52.2
Finance leases (7.5) 2.2 (0.8) 0.3 (5.8)
Bank loans (548.5) (17.8) (1.6) 66.3 (501.6)
Other loans (3.6) 1.3 - 0.1 (2.2)
Net debt (438.1) (77.7) (2.4) 60.8 (457.4)
Selected notes to the consolidated interim financial information (continued)
14. Acquisitions
On 10 March 2009 the Group acquired the remaining minority interest in WM Data
for a total consideration of £47.8 million (SEK 594.8 million). This
acquisition resulted in goodwill of £35.8 million, attributable to anticipated
synergies and the value of the workforce.
15. Disposals
During the period the Group disposed of two non-core businesses in Germany.
On 1 January 2009 the Group sold 'Cocq Datendienste GmbH' for consideration of
€1. The company operates a scan centre. The Group recorded an impairment loss
of £0.3 million in the year ended 31 December 2008 on its investment and no
further profit or loss was recorded on the disposal. The company contributed £
0.9 million in revenue during the six months ended 30 June 2008 and £1.9
million during the financial year 2008.
On 27 January 2009 the Group sold its 91% interest in 'Integrata AG', a German
training business. The business was sold for consideration of €5 million,
leading to a profit of £0.6 million on disposal. The company contributed £11.8
million of revenue during the six months ended 30 June 2008 and £26.4 million
during the financial year 2008.
16. Contingent liabilities
The Group's subsidiaries and the Company are currently, and may be from time to
time, involved in a number of legal proceedings including inquiries from or
discussions with governmental and taxation authorities. Whilst the outcome of
current outstanding actions and claims remains uncertain, it is expected that
they will be resolved without a material impact on the Group's financial
position.
17. Interim report
The interim report was approved by the board of directors on 6 August 2009 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, statement of financial position and statement of cash
flow into euros to assist users of the interim financial statements more
familiar with that currency. The statement of comprehensive income and
statement of cash flow in euros have been calculated by converting the
consolidated sterling figures to euros at an average rate of €1.12 to £1 (six
months ended 30 June 2008: €1.29 to £1) except the opening and closing net cash
balance in the statement of cash flow, which uses the same rates as used in the
statement of financial position as mentioned below. The statement of financial
position has been calculated by converting the sterling figures to euros at the
closing rate of €1.17 to £1 (31 December 2008: €1.03 to £1, 30 June 2008: €1.26
to £1).
Euro translation of consolidated statement of comprehensive income
Six months Six months
ended ended
30 June 30 June
2009 2008
€'m €''m
Revenue 2,101.2 2,282.5
Net operating costs (2,058.0) (2,245.1)
Operating profit 43.2 37.4
Analysed as:
Operating profit before exceptional items 92.5 96.2
Exceptional items (49.3) (58.8)
Operating profit 43.2 37.4
Finance costs (21.4) (28.7)
Finance income 4.8 7.1
Share of post-tax profits from associates 0.5 0.5
Profit before tax 27.1 16.3
Taxation (3.4) (8.4)
Net profit for the period 23.7 7.9
Other comprehensive income
Exchange differences on translation of (220.3) 141.7
foreign operations
Actuarial losses on defined benefit plans (75.7) (4.1)
Tax on items taken directly to equity 20.0 2.2
Other comprehensive income for the period, (276.0) 139.8
net of tax
Total comprehensive income for the period (252.3) 147.7
Profit attributable to:
Owners of the parent 23.7 6.7
Minority interest - 1.2
23.7 7.9
Total comprehensive income attributable to:
Owners of the parent (251.1) 144.2
Minority interests (1.2) 3.5
(252.3) 147.7
Earnings per share cents / cents /
share share
- Basic 1.5 0.5
- Diluted 1.5 0.5
Euro translation of consolidated statement of financial position
See page 31 for basis of translation.
30 June 31 December 30 June
2009 2008 2008
€'m €'m €'m
Non-current assets
Goodwill 2,133.0 2,054.0 2,186.6
Other intangible assets 324.2 365.0 444.7
Property, plant and equipment 154.2 153.5 164.1
Investments in associates 2.8 3.1 2.8
Financial assets 14.2 14.2 15.1
Retirement benefit assets 22.9 64.0 26.3
Deferred tax assets 74.2 60.9 60.2
Total non-current assets 2,725.5 2,714.7 2,899.8
Current assets
Inventories 0.8 0.7 2.3
Trade and other receivables 1,371.4 1,406.7 1,487.3
Current tax assets 16.9 17.2 10.1
Cash and cash equivalents 71.6 130.7 111.1
Total current assets 1,460.7 1,555.3 1,610.8
Current liabilities
Convertible debt - - (305.0)
Other borrowings (20.9) (11.0) (142.8)
Trade and other payables (1,094.4) (1,232.5) (1,218.1)
Current tax liabilities (55.1) (64.0) (64.6)
Provisions (57.2) (37.5) (32.9)
Total current liabilities (1,227.6) (1,345.0) (1,763.4)
Net current assets / (liabilities) 233.1 210.3 (152.6)
Total assets less current liabilities 2,958.6 2,925.0 2,747.2
Non-current liabilities
Borrowings (585.8) (571.0) (374.7)
Retirement benefit obligations (102.8) (65.1) (79.8)
Deferred tax liabilities (99.1) (122.9) (145.4)
Provisions (49.3) (48.5) (33.2)
Other non-current liabilities (1.2) (1.0) (1.1)
Total non-current liabilities (838.2) (808.5) (634.2)
Net assets 2,120.4 2,116.5 2,113.0
Equity
Share capital 187.2 164.6 184.2
Share premium account 1,288.8 1,134.5 1,386.5
Reserves 644.3 803.6 526.5
Total shareholders' equity 2,120.3 2,102.7 2,097.2
Minority interests 0.1 13.8 15.8
Total equity 2,120.4 2,116.5 2,113.0
Euro translation of consolidated statement of cash flow
See page 31 for basis of translation.
Six Six
months months
ended ended
30 June 30 June
2009 2008
€'m €'m
Cash flows from operating activities
Net cash inflow from trading operations 104.3 126.2
Cash outflow related to restructuring and integration (35.3) (17.8)
activities
Cash generated from operations 69.0 108.4
Finance costs paid (21.5) (18.8)
Income tax (paid) / received (29.1) 16.9
Net cash inflow from operating activities 18.4 106.5
Cash flows from investing activities
Finance income received 1.9 5.2
Dividends received from associates 0.8 0.9
Proceeds on disposal of property, plant and equipment 0.1 0.1
Purchases of property, plant and equipment (19.7) (23.7)
Expenditure on intangible assets (11.8) (15.9)
Purchase of minority interests (53.5) (55.0)
Acquisition of subsidiaries and other businesses, net of cash - (2.6)
acquired
Disposal costs of prior year disposals - (9.5)
Disposal of subsidiaries and other businesses, net of cash 0.6 3.0
disposed
Net cash outflow from investing activities (81.6) (97.5)
Cash flows from financing activities
Proceeds from issue of new shares - 2.5
Proceeds from bank borrowings 20.6 66.7
Repayments of bank borrowings (0.6) (44.4)
Repayments of finance lease principal (2.5) (2.7)
Repayments of other borrowings (0.9) -
Proceeds from forward contracts (13.8) 9.9
Dividends paid to the Company's shareholders (10.6) (65.1)
Net cash outflow from financing activities (7.8) (33.1)
Net decrease in cash, cash equivalents and bank overdrafts (71.0) (24.1)
Cash, cash equivalents and bank overdrafts at the beginning of 125.1 145.4
the period
Net decrease in cash, cash equivalents and bank overdrafts (71.0) (24.1)
Effect of foreign exchange rates 7.0 (11.6)
Cash, cash equivalents and bank overdrafts at the end of the 61.1 109.7
period
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
2009, which comprises the consolidated statement of comprehensive income,
consolidated statement of financial position, consolidated statement of cash
flow, 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 2009 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 LLP
Chartered Accountants
London
6 August 2009
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.