2014 full year results presentation€¦ · involvement with the london market modernisation 100%...

2014 FULL YEAR

RESULTS

PRESENTATION26 February 2015

© 2015 Xchanging plc

AGENDA

2

1 Where we are today

Review of the yearKen LeverChief Executive

2 Financial performanceDavid BauernfeindChief Financial Officer

3 Business development

Summary and outlookKen LeverChief Executive


TODAY

Focus on technology and technology-enablement

Ownership of the businesses

Procurement: technology platforms and focused offerings

Technology direction: Insurance Software; Application Services

Reduced customer concentration risk

Improved organisational capability

3

London office in Walbrook


NEW BUSINESS MODEL HAS EMERGED

Move from low margin BPO to higher value technology offerings

Strategic and commercial run-off

Underlying growth allowing for exited business

Significant investment for future growth – short term impact on cash

4

Technology Procurement

BPS

More to do: delivering performance


ACHIEVEMENT OF 2014 OBJECTIVES

5

Maintain adjusted

operating profitResume growth in 2015

1 2

Invested in growth and infrastructure

3


WHAT WENT WELL IN 2014?

Involvement with the London Market modernisation

100% ownership of FdB

Application Services¹ emerges well

Excellent progress: MM4¹

Total Objects and Agencyport Europe* acquisitions

Investment in internal Infrastructure

6

*The Agencyport Europe acquisition is currently under review by the Competition and Markets Authority. All

Agencyport Europe companies acquired by Xchanging have now been rebranded as Xchanging Software.

¹ See 2014 Investor Seminar material: http://www.xchanging.com/investor-relations/investor-seminar-2014

http://www.xchanging.com/investor-relations/investor-seminar-2014


DISAPPOINTMENTS IN 2014

Impact of LME in-house decision not fully mitigated

Xuber and Netsett progress less quickly

New South Wales award decision

Agencyport Europe* Phase 2 CMA referral

7




ON THE ROAD TO GROWTH

Transformation complete

Time to drive growth

Fit and competing to win

8

FINANCIAL

PERFORMANCEDavid Bauernfeind

Chief Financial Officer

© 2015 Xchanging plc10

FINANCIAL INDICATORS

2014 2013

Net revenue (£m) 406.8 526.4

Adjusted operating profit (£m) 55.8 55.5

Adjusted operating profit margin (%) 13.7 10.5

Statutory operating profit (£m) 36.6 81.9

Adjusted profit before tax (£m) 51.1 51.7

Adjusted basic EPS (pence) 11.86 10.30

Operating cash flow (£m) 6.5 52.9

Equity free cash flow (£m) (7.6) 33.4

Adjusted cash conversion (%) 17.2 58.0

Net cash (£m) 13.7 120.1

Xchanging’s share of net cash (£m) (31.6) 52.8

Economic profit (£m) 24.9 28.4


NET REVENUE 2013 TO 2014 WALK


INCOME STATEMENT

2014 2013

£m £m

Adjusted operating profit 55.8 55.5

Exceptional items (7.1) 29.9

Acquisition costs (6.0) (0.3)

Amortisation of acquired intangibles (6.1) (3.2)

Statutory operating profit 36.6 81.9

Net finance costs (4.3) (4.0)

Share of profit from joint venture 0.2 0.4

Profit before tax 32.5 78.3

Taxation (3.1) (12.9)

Profit for the period 29.4 65.4

Adjusted basic EPS (pence) 11.86 10.30


INVESTMENT

2014

£m

Acquisitions

Agencyport Europe* 64.1

Total Objects 11.5

MachineShop 0.6

Exercise of put options

FdB 10.8

Xchanging Italy 4.0

Organic investment

Capital expenditure 46.7

Total 137.7




ORGANIC INVESTMENT

14

Drive cost

savings &

efficiencies

Drive

revenue

growth

£46.7m

Internal change

programmes

Product development

Refresh

Technology backbone

Salesforce.com

Finance – SAP

HR – Workday

IT – Office 365

Product roadmap

Xuber

London Market

MM4 software


CASH FROM OPERATIONS

2014 2013

£m £m

Adjusted operating profit 55.8 55.5

Exceptional items and other adjustments (19.2) 26.4

Statutory operating profit 36.6 81.9

Depreciation and amortisation 26.5 21.7

Non-cash items / non-cash exceptional items 9.3 (20.0)

Share based payments 2.7 3.2

EBITDA 75.1 86.8

(Decrease)/increase in customer cash deposits (0.7) 14.5

(Decrease)/increase in working capital (7.9) (6.3)

Movement in pensions (6.2) (2.4)

Movement in provisions 0.8 (4.4)

Dividends to NCI (11.2) (8.7)

Operating cash flow pre-capital expenditure 49.9 79.5

Capital expenditure (43.4) (26.6)

Operating Cash flow 6.5 52.9


SECTOR PERFORMANCE

2014 2013

Net

Exterrnal

Revenue

Adjusted

operating

profit/(loss)

Adjusted

operating

profit/(loss)

margin

Net

External

Revenue

Adjusted

operating

profit/(loss)

Adjusted

operating

profit/(loss)

margin

£m £m % £m £m %

Business Processing Services 282.4 64.1 22.7% 370.0 59.7 16.1%

Technology 93.1 6.8 7.3% 102.3 9.2 9.0%

Procurement 31.3 (2.5) (8.0%) 54.1 1.8 3.3%

Corporate - (12.6) - - (15.2) -

Total 406.8 55.8 13.7% 526.4 55.5 10.5%


BUSINESS PROCESSING SERVICES

Insurance services

Continued growth in London

market volumes

Solid Australian Workers’

Compensation performance

Well managed cost base

CAF claims and NSW Workers’

Compensation ending

Financial services

Germany, Italy and India marginal

growth improvements

100% ownership of German

business

2014 2013


TECHNOLOGY

Impact of 2013 LME contract loss

Growth of Applications Services

business

Agencyport Europe* and Total

Objects acquisition

2014 2013

*The Agencyport Europe acquisition is currently

under review by the Competition and Markets

Authority. All Agencyport Europe companies

acquired by Xchanging have now been rebranded

as Xchanging Software.


PROCUREMENT

Impact of XHRS business exit in 2013

Growth of MM4

New Procurement management

team

Technology investment

Cost saving initiatives across sector

2014 2013


FINANCIAL SUMMARY

Objectives delivered:

2014 to match 2013 profit

2015 positioned for growth despite final BPS revenue reduction

Investment in infrastructure and product development in 2014

Cash conversion profile

BUSINESS

DEVELOPMENTKen Lever

Chief Executive Officer


A business which through innovation, technology, customer and industry insight

develops and delivers differentiated offerings which address the operating and

processing challenges of our customers and adds value to their businesses.

STRATEGIC DEVELOPMENT

22

Technology-enablement

Customer engagement

Cost base Talent


STRATEGIC CONTEXT

23

BPS


Technology Innovation

Insight Differentiation

Focused offerings to chosen markets


STRATEGIC CONTEXT

24

Complex processing

Technology component

BPS



STRATEGIC CONTEXT

25

Complex processing


BPS

Insurance software for global market

Application services: development, testing,

support and integration

Procurement

Insurance

Software

Application

Services

Technology


STRATEGIC CONTEXT

26

Complex processing


BPS

Insurance software for global market

Application services: development, testing,

support and integration

TechnologyTechnology platform

Refocused offeringsProcurement


THE NEW XCHANGING

27

BPS: stable core business

Protect and grow core business around insurance market, banking

and capital markets and other verticals

BPS

Technology: becoming engine of growth

Xuber + acquisitions*: meaningful growth

Application Services growth

Technology

Procurement: becoming engine of growth

Decisively turned the corner

MM4 + Spikes – further development of technology

platform

Procurement




SPECIFIC AREAS OF FOCUS

28

BPS


NetsettBinders 360 &

Digital 360

Germany &

Italy

Xuber

Application

Services

IoT and

Education

Platforms

Delivery of

contracts won

Technology

platform

Spikes Cavell


SUMMARY AND OUTLOOK

29

Transformation is complete

2015 objectives:

Underlying and

absolute revenue

and profit growth

Return to stronger

cash generation

1 2

Returns on

investments

made

3

APPENDIX


AOP 2013 TO 2014 WALK


EXCEPTIONAL ITEMS

2014 2013

£m £m

Lease surrender for Leadenhall Street and related items 9.7 13.3

Distribution from liquidation of CISGI 0.6 4.5

Profit on disposal of subsidiary - 12.5

Fair Value adjustment for AR Enterprise deferred consideration - 5.0

Onerous contract provision release - 2.2

Employee related provision release - 0.6

Restructuring costs (10.3) (6.2)

New South Wales Workers’ Compensation contract (7.1) -

Closure of future benefit accruals for Rebus pension scheme - (2.0)

(7.1) 29.9


GROUP NET FINANCE CHARGE

Bank debt is expected to

average around £125

million in 2015 as a result

of planned and

committed investments.

The Group’s all-in cost of

debt is expected to be

between 3.5% and 4.0%

2014 2013

£m £m

Bank and other interest (2.9) (3.1)

Amortisation of loan fees (0.5) -

Interest cost on defined benefit pension schemes (2.1) (2.2)

Imputed interest on put option to acquire minority interest

- (0.1)

Imputed interest on deferred consideration (0.1) (0.4)

Bank and other interest received 0.7 1.3

Gain/loss on translation of put option to acquire minority interest

0.6 0.3

Dividends received on AFS assets - 0.2

Total Net Finance Charge in Income Statement (4.3) (4.0)


EQUITY FREE CASH FLOW AND NET CASH

2014 2013

£m £m

Opening net cash 120.1 76.8

Operating cash flow 6.5 52.9

Net interest paid (1.7) (2.5)

Taxation paid (12.4) (17.0)

Equity free cash flow (7.6) 33.4

Equity dividends paid (6.1) (2.4)

Net acquisitions and disposals (85.6) 15.2

Other cash flows (3.3) 0.6

FX movement (3.8) (3.5)

Movement in net cash (106.4) 43.3

Net cash 13.7 120.1


XCHANGING NET CASH

*Xchanging’s share of cash in Enterprise Partnerships is calculated as accrued licence fees and expected

dividend payments

2014 2013

Group cash £m £m

Xchanging wholly owned entities 92.8 30.4

Xchanging Solutions 7.8 7.6

Enterprise Partnerships 28.6 83.3

Total balance sheet cash 129.2 121.3

Xchanging wholly owned entities 58.3 30.4

Xchanging’s share of cash in Xchanging Solutions 5.9 5.7

Xchanging’s share of cash in Enterprise Partnerships* 19.7 17.9

Xchanging’s share of balance sheet cash 83.9 54.0

Bank and other debt (115.5) (1.2)

Xchanging's share of net cash (31.6) 52.8


OCF AND ADJUSTED CASH FLOWS

£m Total Lease

surrender

receipt

Restructuring CISGI

liquidation

New South

Wales

contract

FDB

customer

cash

IFRS 3

amortisation

Acquisition

expenses

Adjusted

Adjusted Operating Profit 55.8 - - - - - - - 55.8

Exceptionals (7.1) (9.7) 10.3 (0.6) 7.1 - - - -

IFRS 3 amortisation (6.1) - - - - - 6.1 - -

Acquisitions costs (6.0) - - - - - - 6.0 -

Operating Profit 36.6 (9.7) 10.3 (0.6) 7.1 - 6.1 6.0 55.8

Depreciation and

amortisation26.5 - - - - - (6.1) - 20.4

Other non-cash items 9.3 - - - (4.1) - - (2.7) 2.5

Share based payments 2.7 - - - - - - - 2.7

Cash from Operations 75.1 (9.7) 10.3 (0.6) 3.0 - - 3.3 81.4

Customer cash deposits (0.7) - - - - 0.7 - - -

Net working capital (7.9) (2.7) - 0.6 - - - (1.6) (11.6)

Pensions (6.2) - - - - - - - (6.2)

Provisions 0.8 - (1.6) - (3.0) - - - (3.8)

Dividends to minorities (11.2) - - - - - - - (11.2)

Capital expenditure (43.4) 4.4 - - - - - - (39.0)

Operating cash flow 6.5 (8.0) 8.7 - - 0.7 - 1.7 9.6

Cash Conversion 11.6% 17.2%


ACQUISITIONS

£mDate of

Transaction

Payments to 31

December

2013

Payments in

2014 (net of

cash acquired)

Outstanding deferred

consideration

Outstanding performance

related paymentsTotal

2015 2016 2015 2016 2017

AR Enterprise October 2012 12.8 2.6 2.4 - - - - 17.8

MM4 September 2013 6.6 - - - 6.4 0.5 - 13.5

Xchanging Italy January 2014 - 4.0 - - - - - 4.0

MachineShop March 2014 - 0.6 - - - - - 0.6

Agencyport Europe* July 2014 - 63.1 - - - - - 63.1

FDB July 2014 - 10.8 - - - - - 10.8

Total Objects December 2014 - 9.2 0.8 0.7 1.5 1.5 5.0 18.7

Total 19.4 90.3 3.2 0.7 7.9 2.0 5.0 128.5

The acquisition of Spikes Cavell was completed on 26 February 2015. The initial consideration was £4.3 million,

with outstanding performance related payments of £3.1 million.




FAIR VALUE OF ACQUISITIONS

Agencyport Europe* Total Objects

4 July 2014 18 December 2014

£m £m

Goodwill 31.3 7.1

Customer contracts and brand 33.2 3.8

Software 12.5 2.5

Cash on acquisition 1.0 2.3

Net assets acquired (5.3) (1.4)

Deferred tax (8.6) (1.3)

Fair value of consideration 64.1 13.0




AGENCYPORT EUROPE* AND TOTAL OBJECTS

2014 Full year results under UK GAAP

Agencyport Europe*

Total Objects Total

£m £m £m

Revenue 20.5 8.1 28.6

Profit before tax 5.9 0.8 6.7

2013 Full year results under UK GAAP

Agencyport Europe*

Total Objects Total

£m £m £m

Revenue 18.9 8.0 26.9

Profit before tax 4.7 0.4 5.1




BUSINESS PROCESSING SERVICES

2014 2013

Net

external revenue

Adjusted

operating profit

Adjusted

operating profit margin

Net

external revenue

Adjusted

operating profit

Adjusted

operating profit margin

£m £m % £m £m %

Insurance Services 182.7 53.3 29.2% 199.8 43.5 21.8%

Financial Services 99.7 10.8 10.8% 170.2 16.2 9.5%

Business Processing Services

282.4 64.1 22.7% 370.0 59.7 16.1%


RECONCILIATION OF TAX CHARGE ON ADJUSTED PROFIT

2014

£m

Adjusted profit before tax 51.1

Tax on adjusted profit before tax @ 21.5% (UK tax rate) 11.0

Benefit of losses in Italy and other temporary differences (3.6)

Amortisation of intangible assets (0.8)

Prior year adjustments (0.9)

Other non-deductible items 0.4

Tax rate differences with other countries 1.5

(India 34%, Australia 30%, Germany 30%, US 40%)

Tax charge on adjusted profit 7.6


CUSTOMER CONCENTRATION AND MARGIN

Net revenue from customer contracts greater than £10.0 million

Net revenue from customer contracts less than £10.0 million

Adjusted operating profit margin (%)


FOUR YEAR TIMELINE

BUILDING TECHNOLOGY-ENABLEMENT

Netsett pilot launched

Re-launch of Xuber

Introduction of shared

services

Acquired AR Enterprise

in Italy

SIA exercised put option

giving Xchanging 100%

ownership of Xchanging

Italy

Bank refinancing to 2018

completed

London office move to

Walbrook

Acquired Total Objects

and Agencyport Europe*

(re)insurance and

insurance software

businesses

Restructuring of

Procurement around

technology

100% ownership of

Fondsdepot Bank

Significant investment in

internal change

programme

2011 2013 2014

Profit warning and £100

million goodwill write

down

Sold US BPO business

and acquired 100% of

Australian and Indian

BPO businesses

One Xchanging sales

capability initiated

Hanover Square head

office closed;

relocation to existing

City office

Bank re-financing to

2015 completed

100% ownership of

Xchanging Broking

Services

‘Four Part Action

Plan’ launched

2012 2015

‘Four Part Action

Plan’ complete

AR Enterprise and

Kedrios integrated to

form Xchanging Italy

End of HR services to

BAE Systems (XHRS)

Resumption of the

dividend

Sold shareholding in

Xchanging Transaction

Bank to Deutsche Bank

Acquired MarketMaker4

Procurement software

business

Acquisition of Spikes

Cavell Analytic

Limited

*The Agencyport Europe acquisition is currently under review by the Competition and Markets Authority. All Agencyport Europe

companies acquired by Xchanging have now been rebranded as Xchanging Software.

2014 full year results presentation€¦ · involvement with the london market modernisation 100%...

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