2007 Preliminary Results ..cont'd 1

1. Accounting policies and basis of preparation

Basis of preparation
The financial information in this preliminary announcement has been extracted from the group’s consolidated financial statements for the year ended 31 December 2007.  The group’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union (‘EU’) and those parts of the Companies Act 1985 (‘the Act’) that remain applicable to companies reporting under IFRS.

The consolidated financial statements have been prepared under the historical cost convention with the exception of certain items which are measured at fair value. 

This preliminary announcement was approved by the Board of directors on 26 February 2008.  The financial information in this preliminary announcement does not constitute the statutory accounts of LogicaCMG plc (‘the company’) within the meaning of section 240 of the Act.

The statutory accounts of the company for the year ended 31 December 2007, which include the group’s consolidated financial statements for that year, were unaudited at the date of this announcement.  The auditors’ report on those accounts is expected to be signed following approval by the Board of Directors on 20 March 2008 and subsequently delivered to the Registrar of Companies after the Annual General Meeting on 14 May 2008.  The statutory accounts for the year ended 31 December 2006, which were prepared under IFRS, 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 Act.

Adoption of new and revised International Financial Reporting Standards

The accounting policies adopted in these consolidated financial statements are consistent with those of the annual financial statements for the year ended 31 December 2006, except that the following standards, amendments to and interpretations of published standards were adopted during the year:

• IFRIC 7, ‘Applying the restatement approach under IAS 29’.
• IFRIC 8, ‘Scope of IFRS 2’.
• IFRIC 9, ‘Reassessment of Embedded Derivatives’. 
• IFRIC 10, ‘Interim Financial Reporting and Impairment’. 
• IFRS 7, ‘Financial Instruments: Disclosures’ and IAS 1, ‘Amendments to capital disclosures’.  The full IFRS 7 disclosures, including the sensitivity analysis to market risk and capital disclosures required by the amendment of IAS 1, are given in the annual financial statements.  IAS 1 (revised) is still subject to endorsement by the European Union.
• IFRS 4, ‘Insurance contracts’.  This interpretation was not relevant to the group.

Except for the additional disclosure under IFRS 7, the above standards, amendments to and interpretation of published standards had no material impact on the consolidated financial statements.

The following new standards, amendments to standards and interpretations have been issued but are not effective for 2007 and have not been early adopted:

• IFRIC 11, ‘IFRS 2 – Group and treasury share transactions’, effective for annual periods beginning on or after 1 March 2007. Management do not expect this interpretation to have a significant impact on the consolidated financial statements.
• IFRIC 12, ‘Service concession arrangements’, effective for annual periods beginning on or after 1 January 2008.  Management do not expect this interpretation to be relevant for the group.  The amendment to the standard is still subject to endorsement by the European Union.
• IFRIC 13, ‘Customer loyalty programmes’, effective for annual periods beginning on or after 1 July 2008.  Management do not expect this interpretation to be relevant to the group.  The amendment to the standard is still subject to endorsement by the European Union.
• IFRIC 14,’IAS 19 – The limit of a defined benefit asset, minimum funding requirements and their interaction’, effective for annual periods beginning on or after 1 January 2009.  Management do not expect the interpretation to have a significant impact on the consolidated financial statements.  The amendment to the standard is still subject to endorsement by the European Union.
• IAS 1, ‘Presentation of financial statements’, effective for annual periods beginning on or after 1 January 2009.  No significant impact on the consolidated financial statements is expected, except for additional disclosure.
• IAS 23 (Amendment), ‘Borrowing costs’, effective for annual periods beginning on or after 1 January 2009.  Management do not expect the interpretation to have a significant impact on the consolidated financial statements.  The amendment to the standard is still subject to endorsement by the European Union.
• IAS 27 (Revised), ‘Consolidated and Separate Financial Statements’, must be applied prospectively by the group from 1 January 2010.  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.  The revised standard is still subject to endorsement by the European Union. 
• IFRS 2 (Amendment), ‘Share-based payment’, effective for annual period 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.  No significant impact on the consolidated financial statements is expected.  The amendment to the standard is still subject to endorsement by the European Union.
• IFRS 3 (Revised), ‘Business combinations’, must be applied prospectively by 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.  This has a number of implications:
  - where the acquirer has a pre-existing equity interest in the entity acquired and increases its equity interest such that it achieves control, it must re-measure its previously-held equity interest to fair value as at the date of obtaining control and recognise any resulting gain or loss in the income statement.
  - once control is achieved all other increases and decreases in ownership interest are treated as transactions among equity holders and reported directly within equity.  Goodwill is not re-measured or adjusted.  The revised standard is still subject to endorsement by the European Union.
• IFRS 8, ‘Operating segments’, effective for annual periods beginning on or after 1 January 2009.  The main impact would be that operating segments would be identified, and segment information provided, on the same basis as is used internally for evaluating segment performance and allocating resources.  Reconciliations would be provided of total segment revenues, profit, assets, liabilities and other amounts to the corresponding amounts in the consolidated financial statements, together with an explanation of any differences in measurement basis.

All the IFRSs, IFRIC interpretations and amendments to existing standards had been adopted by the EU at the date of approval of these consolidated financial statements, unless otherwise indicated. 

Except as discussed above, the directors anticipate that the future adoption of those standards, interpretations and amendments listed above that have not been adopted early will not have a material impact on the consolidated financial statements.

Foreign currencies

The most important foreign currencies for the group are the euro and the Swedish Krona.  The relevant exchange rates to pounds sterling were:

		2007				2006
		Average		Closing		Average		Closing
£1 = €		1.46		1.36		1.47		1.48
£1 = SEK		13.51		12.87		13.57		13.39

2. Segment information

Logica was organised into six geographical segments based on the location of assets.  These segments are the group’s primary reporting format for segment information as they represent the dominant source and the nature of the group’s risks and returns following the disposal of the Telecoms Products business.  Segment revenue and profit after tax under the primary reporting format are disclosed in the table below.

		Revenue				Profit
		2007		2006		2007		Restated                   2006
		£’m		£’m		£’m		£’m
Nordics		836.9		190.5		13.4		4.8
United Kingdom		662.5		718.4		30.5		86.8
France		588.2		560.0		20.2		13.0
Netherlands		484.7		447.6		47.3		44.2
Germany		179.6		168.6		5.4		(19.5)
International		321.3		335.6		(7.1)		12.6
Revenue and operating profit		3,073.2		2,420.7		109.7		141.9
Finance costs						(37.8)		(34.3)
Finance income						11.0		8.7
Share of post-tax profits from associates						1.2		0.3
Taxation						(5.4)		(31.2)
Profit after tax from continued operations						78.7		85.4
Discontinued operation						89.4		3.7
Profit after tax						168.1		89.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The share of post-tax profits from associates in the years ended 31 December 2007 and 2006 was attributable to the Nordics geographical segment.  Inter-segment revenue for the International category was £40.4 million (2006: £30.7 million).  Inter-segment revenue for the other categories was not material.

3. Exceptional items

The exceptional items recognised within operating profit were as follows:

		2007		2006
		£’m		£’m
Restructuring and integration costs		(13.5)		(32.9)
Disposal of businesses		(9.7)		-
Reduction in retirement benefit obligation due to harmonisation of plan rules		-		9.0
		(23.2)		(23.9)

 

 

 

 

 

 

 

The group incurred a charge of £13.5 million relating to the restructuring of the business in the Nordics following the acquisition of WM-data AB.  The restructuring comprised costs associated with offshoring activities and IT infrastructure.

During 2007, the group incurred a loss on the disposal of several businesses of £9.7 million.  An impairment loss of £2.6 million was included in the loss on the disposal of businesses.  The impairment loss related to buildings previously occupied by the graphic services business in Portugal prior to the disposal of this business.  The disposals are described further in note 14.

In 2006, the group incurred a charge of £32.9 million mainly relating to the restructuring of the businesses in France and Germany following the acquisition of Unilog and the closure of a building in the United States of America.  The restructuring comprised a reduction in headcount, vacated property and other measures to reduce the cost base.  The group also harmonised the cash commutation rates used in the CMG UK pension scheme across the entire plan membership. 

The effect of applying the new cash commutation rates was a reduction in the defined benefit liability of £9.0 million, which was recognised in full as an exceptional item.

4. 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 IFRSs 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, IFRSs measures of profit.

				Restated
		2007		2006
		£’m		£’m
Operating profit		109.7		141.9
Exceptional items		23.2		23.9
Amortisation of intangible assets initially recognised on acquisition		74.7		37.6
Adjusted operating profit		207.6		203.4

 

 

 

 

 

 

 

 

Adjusted operating profit analysis per geographical segment was as follows: