2013 final results presentation - dxc …...xchanging net cash group cash 31 december 2013£m 31...
TRANSCRIPT
2013 FINAL RESULTS PRESENTATION 27th February 201427 February 2014
Overall progress Business review Business review
Business developmentBusiness development
© 2014 Xchanging plc11
CONTINUING PROGRESS
Further progress on transformation during 2013Further progress on transformation during 2013
Good financial performance in 2013– Adjusted operating profit up 10 1% to £55 5m– Adjusted operating profit up 10.1% to £55.5m– Operating margin above 10%
Strong financial position Strong financial position
Increased dividend of 2.5p
f ti ti i Transformation process continuing:– Stepping up investment
Aim is to maintain adjusted operating profit– Aim is to maintain adjusted operating profit– Position for resumption of revenue and profit growth in 2015
© 2014 Xchanging plc2
BUSINESS OBJECTIVES
YEAR-ON-YEAR IMPROVEMENT IN WIN BUSINESS FROM NEW YEAR ON YEAR IMPROVEMENT IN FINANCIAL PERFORMANCE
WIN BUSINESS FROM NEW CUSTOMERS
WIN MORE BUSINESS FROM EXISTING WIN MORE BUSINESS FROM EXISTING CUSTOMERSACHIEVE ‘ONE XCHANGING’WIN MORE BUSINESS FROM EXISTING
CUSTOMERS
© 2014 Xchanging plc3
2013 WINS: CASE STUDIES
New customer
Competition
Differentiated offering
Technology Technology
© 2014 Xchanging plc4
BUSINESS MODEL
T h lT h l In markets growing at
>10%M k t l di itiP tP t
Markets growing at 5-10%
Investment phasei TechnologyTechnology Market leading position
Building/acquiring IT components
Expertise based services
ProcurementProcurement Based on a variety of types of contract
Frequently own IP Potential for higher pPotential for higher
growth
BPSBPSBPSBPS
Markets growing c. 5-10% Well-established, lower risk
Cash generative Own technology
© 2014 Xchanging plc5
Well established, lower risk Significant annuity element
Own technology platform and IP
BUSINESS PROCESSING SERVICES
Insurance:– Growth in London Market– Developing broader business
Financial Services: – Restructuring– Development of FDB
Developing customer relationships Developing customer relationships Building capabilities
TechnologyTechnology ProcurementProcurementTechnologyTechnology ProcurementProcurement
BPS
© 2014 Xchanging plc6
TECHNOLOGY
Strategic focus around five areas
Building on core areas (Application Services/Engineering Services)
Exploring new areas (Education Platforms and Internet of Everything) Exploring new areas (Education Platforms and Internet of Everything)
Growing Xuber insurance software
Technology ProcurementProcurement
BPS
© 2014 Xchanging plc7
XUBER
Revenue growth in year
Strong pipeline
Investment continues
US launch – focus on US admitted market
First US reference customer – Everest ReFirst US reference customer Everest Re
Launched Xuber4London
© 2014 Xchanging plc8
PROCUREMENT
Tough year
Reconfiguring Europe
Winning new contracts4
Winning new contracts
Investing for the future
Acquisition of MarketMaker4
Technology Procurement
BPSBPS
© 2014 Xchanging plc9
MARKETMAKER4
Accelerates technology strategy in Procurement
Synergies:
New customers Value addingNew customers
Cross sell
C t b i d 50% i i iti
Value adding
Extends reach in US
Customer base increased approx. 50% since acquisition
© 2014 Xchanging plc10
GOING FOR GOLD
Sales and marketing led organisation
S d di i d i lifi i Standardisation and simplification
Creating long-term efficiencies
Employee engagement
© 2014 Xchanging plc11
FINANCIAL PERFORMANCEDavid BauernfeindDavid Bauernfeind
Chief Financial Officer
FINANCIAL INDICATORS
2013 2012 Change
N t (£ ) 526 4 527 9 (0 3%)Net revenue (£m) 526.4 527.9 (0.3%)
Adjusted operating profit (£m) 55.5 50.4 10.1%
Adj sted operating margin (%) 10 5 9 5 10 5%Adjusted operating margin (%) 10.5 9.5 10.5%
Statutory operating profit (£m) 81.9 46.0 78.0%
Adjusted profit before tax (£m) 51 7 45 5 13 6%Adjusted profit before tax (£m) 51.7 45.5 13.6%
Adjusted basic EPS (pence) 10.30 10.39 (0.9%)
Dividend (pence) 2 5 1 0 150%Dividend (pence) 2.5 1.0 150%
Operating cash flow (£m) 52.9 62.6 (15.5%)
Equity free cash flow (£m) 33 4 50 3 (33 6%)Equity free cash flow (£m) 33.4 50.3 (33.6%)
Adjusted cash conversion (%) 58.0 122.0 (52.5%)
Net cash (£m) 120.1 76.8 56.4%( ) %
Xchanging’s share of net cash (£m) 52.8 22.3 136.8%
Economic profit (£m) 28.4 22.3 27.4%
© 2014 Xchanging plc13
p ( )
ECONOMIC PROFIT & OPERATING MARGIN
£28.4m 11.0%30.0 Economic profit
Adj t d O ti £22.3m 10.5%
10.0%
10.5%
20.0
25.0 Adjusted Operating Profit margin
£m
£12.3m9.5%
9.0%
9.5%
10 0
15.0
8.1% 8.0%
8.5%
5.0
10.0
2011 2012 2013
7.5%0.02011 2012 2013
2011 2012 2013
Adjusted operating profit (£m) 43.2 50.4 55.5Invested capital(£m) 150.4 122.3 122.0Adjusted tax rate(%) 36.3 31.5 26.9Capital charge (£m) (15.0) (12.2) (12.2)Tax charge on adjusted operating profit (£m) (15.9) (15.9) (14.9)
© 2014 Xchanging plc14
Tax charge on adjusted operating profit (£m) (15.9) (15.9) (14.9)Economic profit (£m) 12.3 22.3 28.4
ADJUSTED BASIC EPS
10 6711.00
10.39 10.30
10.67
0 00
10.50
)
9.559.50
10.00
(pen
ce
8 50
9.00
(
8.018.00
8.50
7.31
7.00
7.50
7.002011 2012 2013
Adjusted basic EPS as reported Adjusted basic EPS (excluding XTB NCI)
© 2014 Xchanging plc15
INCOME STATEMENT
2013 20122013 2012£m £m
Adjusted operating profit 55.5 50.4Adjusted operating profit 55.5 50.4Exceptional other income 29.9 -Acquisition – related expenses (0.3) (0.4)Amortisation of acquired intangibles (3.2) (4.0)Statutory operating profit 81.9 46.0Net Finance costs (4.0) (5.4)Share of profit from joint venture 0.4 0.1Profit before tax 78 3 40 7Profit before tax 78.3 40.7Taxation (12.9) (12.8)Profit for the period 65.4 27.9p
© 2014 Xchanging plc16
EXCEPTIONAL ITEMS
2013 (£m)2013 (£m)
Profit on disposal of subsidiary 12.5
Lease surrender for Leadenhall Street and related items 13.3
Restructuring costs (6.2)g ( )
Fair value adjustment for AR deferred consideration 5.0
Distribution from liquidation of CISGI 4 5Distribution from liquidation of CISGI 4.5
Onerous contract provision release 2.2
Closure of future benefit accruals for Rebus pension scheme (2.0)
Employee related provision release 0.6
29.9
© 2014 Xchanging plc17
CASH FROM OPERATIONS
£m12 months to 31 December
12 months to 31 December
2013 2012
Adjusted operating profit 55.5 50.4Net exceptional income 29 9 -Net exceptional income 29.9Amortisation of acquired intangibles previously unrecognised (3.2) (4.0)Non-cash element of exceptional items (20.3) (0.9)Depreciation and amortisation 21.7 30.5Share based payments 3.2 2.0Increase in customer cash deposit cash 14.5 9.1(Decrease)/increase in working capital (6.3) 4.8Movement in pensions (2.4) (2.4)Movement in provisions (4 4) (3 8)Movement in provisions (4.4) (3.8)Dividends to NCI (8.7) (7.6)Capital expenditure (26.6) (15.5)Operating cash flow 52.9 62.6
© 2014 Xchanging plc18
OPERATING CASH FLOW AND NET CASH
£m 12 months to 31 December 2013
12 months to 31 December 2012
Opening net cash 76.8 45.2
Operating cash flow 52.9 62.6
Net interest paid (2 5) (2 5)Net interest paid (2.5) (2.5)Taxation paid (17.0) (9.8)
Equity free cash flow 33.4 50.3
Equity dividends paid (2 4)Equity dividends paid (2.4) -Net acquisitions and disposals 15.2 (17.5)FX movement/other (2.9) (1.2)( ) ( )
Closing net cash 120.1 76.8
© 2014 Xchanging plc19
XCHANGING NET CASH
Group Cash 31 December 2013£m
31 December 2012£m
Xchanging wholly owned entitiesXchanging SolutionsEnterprise Partnerships
30.47.6
83.3
37.24.8
74.4
Total balance sheet cash 121.3 116.4
Xchanging wholly owned entities 30 4 37 1Xchanging wholly owned entitiesXchanging’s share of cash in XchangingSolutionsXchanging’s share of cash in Enterprise
30.4
5.717.9
37.1
3.721.1
Partnerships*
Bank and other debt (1.2) (39.6)
Xchanging net cash 52.8 22.3
* Xchanging’s share of cash in Enterprise Partnerships is calculated as accrued licence fees and expected dividend payments.
See slide 41 for additional analysis of cash held in Enterprise Partnerships
© 2014 Xchanging plc20
SECTOR PERFORMANCE
2013 20122013 2012
Net external
Adjusted operating
Adjusted operating
Net external
Adjusted operating
Adjusted operating external
revenue£m
operating profit/ (loss)
£m
operating profit
margin%
external revenue
£m
operating profit/ (loss)
£m
operating profit
margin%
Business Processing Services 370.0 59.7 16.1% 375.6 50.0 13.3%
Technology 102 3 9 2 9 0% 98 8 9 6 9 7%Technology 102.3 9.2 9.0% 98.8 9.6 9.7%
Procurement 54.1 1.8 3.3% 53.5 6.1 11.4%
Corporate - (15.2) - - (15.3) -
T t l 526 4 55 5 10 5% 527 9 50 4 9 5%Total 526.4 55.5 10.5% 527.9 50.4 9.5%
© 2014 Xchanging plc21
BUSINESS PROCESSING SERVICES
London market growth370.0 375.6
350
400 Net revenue
Australian workers’ compensation200
250
300
compensation
Disposal of XTB102.3
54.1
98.8
53.550
100
150
Full year of revenue from acquired AR Enterprises; loss t t fit
0 Business Processing Services Technology Procurement
2013 2012 turns to profit59.7
50.00
60
70 Adjusted Operating Profit
0 3 0
30
40
50
9.21.8
9.66.1
0
10
20
i i h l
© 2014 Xchanging plc22
Business Processing Services
Technology Procurement
TECHNOLOGY
Growth in existing customer b
370.0 375.6
350
400 Net revenue
base
Growth in Xuber revenues: continued investment
200
250
300
continued investment
New sales to replace lost LME revenue in 2014
102.3
54.1
98.8
53.550
100
150
LME revenue in 2014
Growth in both AMS & AES2013 2012
0 Business Processing Services Technology Procurement
59.7
50.050
60
70 Adjusted Operating Profit
30
40
50
9.21.8
9.66.1
0
10
20
B i P i T h l P t
© 2014 Xchanging plc
Business Processing Services
Technology Procurement
23
PROCUREMENT
New BAE Systems UK contract 370.0 375.6
350
400 Net revenue
effective 1 January 2013
MM4 acquired in September200
250
300
Contract extension with L'Oreal
102.3
54.198.8
53.550
100
150
Increased profit around exit activity in HR business
0 Business Processing Services Technology Procurement
2013 2012
59.7
50.050
60
70 Adjusted Operating Profit Technology investment and cost reduction in place to address performance
30
40
50 address performance
9.2
1.8
9.66.1
0
10
20
© 2014 Xchanging plc
Business Processing Services
Technology Procurement
24
FINANCIAL SUMMARY
• Strong financial positiong p
2014 i h ll i b t hi bl• 2014 is challenging but achievable
• Rigorous approach to capital allocation
• Increased dividend proposed
© 2014 Xchanging plc25
BUSINESS DEVELOPMENTKen LeverKen Lever
Chief Executive
BROADENING CUSTOMER BASE Focus on domain strengths and capabilities
New products and offeringsNew products and offerings
Renewals with existing customers
Targeting new customers
© 2013 Xchanging plc27
TECHNOLOGY-ENABLEMENT Implementing technology strategies for all service lines
Developing new technology capabilitiesDeveloping new technology capabilities
Building on existing technology
EDUCATION PLATFORM
INTERNET OF THINGS
ANALYTICS
© 2013 Xchanging plc28
To see materials from the Investor Seminar 2013 visit:http://www.xchanging.com/investor-relations/investor-seminar-2013
DIFFERENTIATION THROUGH INNOVATION
Technology drives innovation
Innovation drives sales growthInnovation drives sales growth
Encouraging innovative thinking
N ff i i New offerings emerging
BPO 4.0 CompetencyCentres
“We will combine domain expertise with innovation and technology to deliver solutions to customers that add value to their businesses”
© 2013 Xchanging plc29
to deliver solutions to customers that add value to their businesses
INVESTMENT
Broking
2011 2012 2013 2014 2015+Investment Expenditure
Broking Services
Data Integration
AR Enterprise MM4Acquisitions Bolt-on acquisitions
Business X b
Xuber Acceleration of Xuber map
BusinessDevelopment
XuberXuber Netsett
X-presso
Xuber for Workers’ Compensation
Procurement technology platform
Refresh TechnologyRefresh
TechnologyRefresh
InsuranceMarket
TechnologyInsurance Market Technology RefreshRefresh Refresh Technology
RefreshTechnology Refresh
New HR & Finance platforms
Internal Change
HR platformShared services
New London office
Shared service enablement
© 2013 Xchanging plc30
Capital Expenditure £18m £16m £27m Anticipated range for capital
expenditure £40m-£50m
OUTLOOK 2014
Ch ll Challenge– Replacing revenue and profit
of exited businessof exited business
Step up pace; step up investmentinvestment
Aims:– Maintain adjusted operating – Maintain adjusted operating
profit– Resumption of growth in 2015
© 2013 Xchanging plc31
FOLLOW US
Twitter: Twitter:
David Bauernfeind: @CFOXchanging
Al d H k h ll @Ah k h llAlexandra Hockenhull: @Ahockenhull
@XchangingGroup
Facebook: www.facebook.com/xchangingplc
Linkedin www.linkedin.com (search for Xchanging)
Visit our website www.xchanging.com/investor-relations
Download the Xchanging Investor Relations App
© 2013 Xchanging plc32
APPENDIX
NET REVENUE
590.0
42.1570.0
580.0
550 0
560.0
570.0
m
527 9 526 4(36 2)
10.8
530 0
540.0
550.0£m
527.9 526.4(36.2)
(25.6)
7.4
0 0
520.0
530.0
500.0
510.0
Net Revenue Revenue Revenue Acquisition Disposal Foreign Net Revenue 2012 growth shrinkage exchange 2013
© 2013 Xchanging plc34
ADJUSTED OPERATING PROFIT
75.0
14.865.0
70.0
55.54
4.8 0.355 0
60.0
65.0
m
50.4
(16 9) (3.6)
4.51.2
50.0
55.0£m
(16.9) ( )
40.0
45.0
30.0
35.0
© 2013 Xchanging plc35
DEBT REFINANCING
i iNew Facility Terms
Facility amount £125 milliony
Structure Revolving Credit Facility
Maturity June 2018
M i 200b 300bMargin 200bps – 300bps
Financial covenants Leverage 2.5xInterest cover 5 0xInterest cover 5.0x
The new facility was signed on 3 February 2014 and became effective on 4 February 2014 February 2014
© 2013 Xchanging plc36
ADJUSTMENTS TO OPERATING CASH FLOW
2013£m
2012£m£m £m
Increase in customer cash deposit cash 14.5 9.1
Cash impact of exceptional items:Lease surrender for Leadenhall Street and related items 8.8 -Restructuring payments (5 3) (7 8)Restructuring payments (5.3) (7.8)Distribution from liquidation of Cambridge Integrated Services Group Inc 4.5 -Acquisition related costs (0.4) (0.2)Payment for release of US workers compensation on liabilities (1.4) -
20.7 1.1
Operating cash flow 52.9 62.6Adjusted operated cash flow 32 2 61 5Adjusted operated cash flow 32.2 61.5Adjusted cash conversion 58.0% 122.0%
© 2013 Xchanging plc37
ACQUISITIONS AND DISPOSALS
Net acquisitions and disposals £m XTB MM4 TotalNet acquisitions and disposals £m XTB MM4 Total
Cash received/(paid) 30.7 (6.6) 24.1Transaction costs (3.3) (0.3) (3.6)Cash acquired/(disposed) (5.4) 0.1 (5.3)
22.0 (6.8) 15.2
© 2013 Xchanging plc38
TAX
££m
Adjusted profit before tax 51.7Tax on adjusted profit before tax @ 23.25% (UK tax rate) 12.0j p ( )Write-down of closing UK deferred tax assets 2.3Italian benefits re losses and local taxes (1.4)Amortisation of Indian intangible assets (0 8)Amortisation of Indian intangible assets (0.8)Other non-deductible items 0.5Tax rate differences with other countries(I di 34% A t li 30% G 30% US 40%) 1.3(India 34%, Australia 30%, Germany 30%, US 40%) Tax charge on adjusted profits 13.9
The statutory tax rate is lower than the adjusted tax rate due to several exceptional non-taxable receipts during the year. In particular, the disposal of Xchanging Transaction Bank was a non-taxable transaction.
© 2013 Xchanging plc39
XCHANGING QUARTERLY NET CASH 2012 - 2013
£m
55.0
65.0 Xchanging net cash2nd receipt for
Leadenhall lease surrender
45.0MM4
i iti
XTB disposal €35m
£5m
25.0
35.0
t i t f
acquisition $11m
2nd payment for XBS
5 0
15.01st receipt for Leadenhall
lease surrender £5m
acquisition £6m
AR Enterprise acquisition
€13m
(5.0)
5.0
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Dec
-12
Mar
-13
Jun-
13
Sep-
13
Dec
-13
D M J S D M J S D
© 2013 Xchanging plc40
XCHANGING NET CASH
Enterprise Partnership cash 31 December 2013£m
31 December 2012£m£m £m
Customer cash deposits 35.2 20.7
Cash due to Xchanging* 17.9 21.1
Cash due to NCI** 11.2 9.5
Residual cash/working capital*** 19 0 23 1Residual cash/working capital 19.0 23.1
Total 83.3 74.4
*Accrued licence fees and expected dividend payments
** Expected dividend payments
*** Cash that is attributable to shareholders but not expected to be distributed
© 2013 Xchanging plc41
NON-CONTROLLING INTERESTS
Non-controlling interests share of adjusted profit/(loss) after taxadjusted profit/(loss) after tax
2013£m
2012£m
Business Processing Services- XIS/XCS 11.2 8.9FinancialFinancial- XTB 0.9 (2.0- Xchanging Italy - (0.9)Technology- Xchanging Solutions 0.9 0.3Total Group 13 0 6 3Total Group 13.0 6.3
© 2013 Xchanging plc42
BUSINESS PROCESSING SERVICES
2013 2012
Net external revenue
Adjusted operating
profit/
Adjusted operating
profit
Net external revenue
Adjusted operating
profit/
Adjusted operating
profit revenue£m
profit/ (loss)
£m
profit margin
%
revenue£m
profit/ (loss)
£m
profit margin
%
Insurance Services 199 8 43 5 21 8% 197 5 37 5 19 0%Insurance Services 199.8 43.5 21.8% 197.5 37.5 19.0%
Financial Services* 170.2 16.2 9.5% 178.1 12.5 7.0%
Business Processing Services 370.0 59.7 16.1% 375.6 50.0 13.3%
XTB 71.8 10.5 14.6% 97.4 9.6 9.9%
*Financial Services includes XTB
© 2013 Xchanging plc43
GROUP PENSION SCHEMES
Net pension deficit under IAS19 31 December 2013£m
31 December 2012£m
UK schemes (45.8) (41.7)
Continental Europe schemes (6.6) (20.4)Continental Europe schemes (6.6) (20.4)
Total deficit (52.4) (62.1)
Risk Management
• The Group’s aggregate pension deficit has reduced as a result of the disposal of the XTB schemescheme.
• During the year the Rebus Insurance Services Limited Final Salary Pension Scheme (2003) (the “Rebus Scheme”) was closed to future accruals effective from 31 December 2013.
• The final terms of the 2013 actuarial valuation exercise for the Rebus Scheme were agreed with the trustees in February 2014.
• The assessed funding deficit is expected to increase from £21.5m to approximately £36.0m.
• Annual deficit recovery payments will be set at £3.0m per annum increasing by 3.0%
© 2013 Xchanging plc44
y p y p g yeach year.