xchanging cost for profit · financial review. 3 ... 2. 2007 eps based on weighted average number...

Xchanging Cost for Profit

2009 Interim Results3 August 2009

1

© Xchanging 2009, no part of this document may be circulated, quoted or reproduced without prior written approval of Xchanging.

H1 2009 performance…

…growth and resilience

• Continued profitable growth with:

• Revenues: ↑ 38%

• XEBIT: ↑ 42%

• Strong incremental customer demand despite difficult economic conditions

• Over £900m of new contract wins and renewals

• Increased opportunities in the pipeline

• Consolidation of German investment account administration market with FondsServiceBank acquisition

• Integration of Cambridge progressing successfully

• US integration largely complete

• Added over 500 new customers mainly in the US and Asia

• XEBIT margin : ↑ 15 basis points

• Earnings per share: ↑ 14%

Richard HoughtonChief Financial Officer

2

Financial review

3


Revenue

188222

267

367350

254

394

468

558

2004 2005 2006 2007 2008 2009

£m

Half Year Full Year

Revenue up 38%(9% organic)

4


XEBIT

8.310.4

14.3

20.319.3

8.8

21.7

31.1

38.5

2004 2005 2006 2007 2008 2009

£m

Half Year Full YearNote1. Pre exceptional items and amortisation of acquired intangible

assets

XEBIT up 42%1

(18% organic)

5


EBIT and XEBIT margins

4.4%4.7%

5.4% 5.5%

6.9% 6.9%

6.1% 6.2%

H1 2006 H1 2007 H1 2008 H1 2009

XEBIT Margin EBIT Margin (including minorities)

Note1. Pre exceptional items and amortisation of acquired intangible assets

XEBIT margin up 15 bps1

(Xchanging up 43 bps)

6


Underlying Basic EPS1

84

4.65.4

6.2

11.5

14.4

2007 2008 2009

Half Year Full YearNotes 1. Pre exceptional items, amortisation of acquired intangible assets and other add backs2. 2007 EPS based on weighted average number of shares issued between IPO and 30 June 2007 to the actual number of shares in issue

at IPO

Underlying Basic EPS

up 14%

7


Xchanging and Cambridge

84

Notes1. Revenues include £4.3m between Xchanging Group companies and Cambridge Group companies

2. XEBIT is pre exceptional items of £12.1m (2008: £Nil) and amortisation of acquired intangible assets

18%

43 bps

9%

Increase

£2.4m

3.1%

£77.3m

H1 2008

£3.4m

4.2%

£81.1m

H1 2009H1 2008 H1 2009 Increase

Revenue £266.8m £290.3m 5%

XEBIT margin 5.4% 5.8% 110 bps

XEBIT £14.3m £16.8m 42%

Xchanging Cambridge

8


527492

394468

558

446394

340

445

667

2006 2007 2008 2009

£m

Visible revenue - beginning of year Visible revenue - half year

Revenue achieved

Revenue visibility

84

Visible revenue Build up of visible revenue

Visible revenue comprises the following:

• Annuity revenue from contracts which have a remaining contracted period greater than one year

• Revenue at risk which is contracted revenue that is volume dependent after contingency

• Renewals where there is an ongoing relationship and for which contracts renew within a year

86% 84% 95% 80% 88%

Xchanging (stand-alone) Consolidated Group1

Note1. Half year visible revenues for 2009 consolidates

Cambridge. Prior visible revenues are based on Xchanging stand-alone numbers

9


Financing costs

84

Financing costs

H1 2008 H1 2009

Net bank interest 2,639 (930)

Net interest on pensions (57) (891)

Other interest 235 311

Adjusted interest 2,817 (1,510)

Imputed interest on put options (313) (632)

Other imputed interest 193 -

Reported interest 2,697 (2,142)

Xchanging's share of adjusted interest 2,430 (1,087)

• Lower cash balances and interest on cash

• Interest cost on Cambridge debt

• Higher pension interest due to lower discount rate

Financing cost drivers

• Loan facility increased from £90m to £110m to maintain headroom post refinancing of Cambridge debt and FSB acquisition

• Loan facility expires in October 2012

Update on debt funding

10


Investment

84

H1 2009 Full year Guidance£m £m $m

Exceptional costsCash 7 8 12Non-cash 5 7 10Total P&L 12 15 22

Capex 2 8 13

Total 14 23 34

11


Capital expenditure

4.6%

3.0%

4.8%4.4%

3.0%

7.0%

4.0%

2006 2007 2008 2009

Half year Full year

Expected long-term rate of 4%

12


Free cash flow

3.1

26.0

33.0

0.6

16.5

5.8

7.0

Cash generatedfrom operationspre-exceptionals

Cash exceptionalcosts

Cash generatedfrom operations

after exceptionals

Tax Capex / investment Net interest paid Free cash flow

£m

Note 1. Cash exceptional costs relate to the restructuring of Cambridge

1

13


Balance sheet

90

Cash/ debt£m FY

2008H1

2009

Assets

Non-current assets 231.3 386.6

Trade and other receivables 112.5 137.5

Cash and cash equivalents 117.8 63.4

Liabilities

Current liabilities (129.9) (191.1)

Net current assets 100.3 9.8

Total assets less current liabilities 331.7 396.4

Non-current liabilities (73.3) (137.0)

Net assets 258.4 259.4

• Cash of £63.4m at H1 2009 (FY 2008: £117.8m)

• Centrally available cash balances of £21.6m (FY 2008: £75.3m1)

• Net cash of £17.2m (FY 2008: £117.5m)

Pension

• Pension deficit of £22.3m at H1 2009 (FY 2008: £18.2m)

Note 1. Included £25.5m held in escrow in relation to the Cambridge

acquisition

14


Segmental reporting

H1 2009 Revenue

47%

14%

8%

19%

12%

UK Global Procurement Americas

Continental Europe Asia Pacific

H1 2009 underlying XEBIT

30%

23%20%

21%

6%

UK Global Procurement Americas

Continental Europe Asia Pacific

Note 1. Segmental financials split before central costs and eliminations

15


Financial overview of Cambridge

H1 2009 Revenue: £81.1m

73%

27%

BPO

ITO

H1 2009 EBIT: £4.5m (6% margin)

Note1. Revenues include £4.3m between Xchanging Group companies and Cambridge Group companies

52%

10%

14%

24% BPO USA

BPO India

BPOAustraliaITO

1

EBITRevenues

David AndrewsChief Executive Officer

16

Strategy and outlook

17


First half highlightsGrowth

• £825m, five-year procurement contract with Alexander Mann Solutions

• Acquired FondsService Bank (FSB) business unit, with revenues of over €40m in 2008, for €21.4m

• Seven-year contract with AonBenfield to provide insurance broking services in the UK

• Enterprise licence agreement with QBE and associated implementation services

Renewals

• 100% renewal rate in the US including Walmart and American Express

• Extended contracts with DHL, Singapore Government and Swift

• Concluded discussions on the future shape for claims processing with the London Insurance Market

Re-alignment

• Employee integration well underway globally

• Completed restructuring of US BPO – 45 sites reduced to 16 principal offices

• Regional organisation structure in place and strengthened senior management team

18


Global BPO market…

70 74 80 8796

105

26 28 31 34

111119

130142

157172

2422 332927242219

2008 2009 2010 2011 2012 2013

US

$ b

illio

ns

Americas EMEA Asia/Pacific Worldwide

2009 – 2013 CAGR: 10%

2009 growth: 7%

Source: IDC May 2009

… continues to be attractive

19


A large customer base…

Notes 1. Annual revenues based on 2008 financials2. Aon included in >£1m column a customer for both Cambridge and Xchanging

53

6 415

74

18

31

51

>£0.5m >£1.0m >£5.0m >£10.0m >£20.0mAnnual revenues

Num

ber o

f cus

tom

ers

Xchanging Cambridge

723

83

125

4

2

… an exciting base to build on

20


A global customer base…

48

9

44

517

2

US UK Continental Europe Asia Pacific

Num

ber o

f cus

tom

ers

Xchanging Cambridge

61

50

95

… to drive sustainable growth

21


A strong pipeline …

20

Opportunities, each with annual value > £20m

Interest Shaping Validation Conclusion

18

8

2 2

… for sustainable high growth

22


Key aims …

Continental Europe

UK

Americas

• Continue electronification of London insurance market• Grow broking and hosting• Reap consolidation synergies

Asia Pacific

Global Procurement

• Turnaround as a result of restructuring• Leverage Cambridge and Xchanging’s insurance customers• Gain market share in US claims market

• Participate in consolidation of the investment account administration market

• Extend strong relationships into insurance, HR and procurement for new profitable revenues

• Develop Tier 3/4 locations and special economic zones in India• Promote additional offshoring of onshore processing• Transform ‘white label’ workers compensation processing in Australia

• Use our global footprint to exploit our position in a high growth market

• Leverage our global procurement expertise locally

… in our segments

23


Outlook …

28

Confident of continued delivery of profitable growth

• Focus on growing our relationships with a broader customer base

• Deliver on opportunities in our pipeline

• Consistent focus on margin enhancement

• Well placed to take advantage of next growth wave in the global BPO market

24


•Strong competitive position

•High revenue visibility

•Sustainable high growth

•Established profitability with margin upside

•Proven management

•Clear strategy

Our shareholder promise…

… that we continue to deliver on

Q&A25


Appendix26


27


Re-enforcing our IPO message …

• Structural market growth• Track record of market outperformance• High barriers to entry

Sustainable High Growth

• Long term contracts• High customer “stickiness”• Systematic sales targeting

High Revenue Visibility

• Global footprint• Flexible go-to-market approach with full suite of BPO offerings• Lean processing

Strong Competitive Position

• Productivity improvement and economies of scale• Significant arbitrage opportunities from offshore capability• US BPO restructuring benefits

Established Profitabilitywith Margin Upside

• Significant experience • Seasoned team• Significant investment in senior management recruitment

Proven Management

• Grow existing platforms • Add new platforms• Lean processor

Clear Strategy

28

28


Segmental reporting

29


99.9

9.5

112.4

14.3

Revenue XEBIT

£m

H1 2008 H1 2009

UK

• Revenues up 13% driven by new contract wins and incremental volumes from IMR investment

• Profits driven by productivity improvements, benefits from regional restructuring and HR business performance

• Trends and opportunities

• Continuing electronification London market

• Growth in broking and hosting businesses

• Strategic alliance with AMS in HR market

Review / trends

Note 1. Segmental financials before central costs and eliminations

30


Continental Europe

6.1

72.2

5.9

81.9

Revenue XEBIT

£m

H1 2008 H1 2009

• Revenue driven by launch of new German withholding tax offset by weaker processing volumes and business support

• Net revenue growth primarily reflects movement in foreign exchange

• Profit maintained through productivity improvements


• Consolidation of the funds administration market

• Recovery in retail securities volumes

• Leverage strong relationships into insurance, HR and procurement

Review / trends


31


Americas

1.7

15.0

2.3

76.7

Revenue XEBIT

£m

H1 2008 H1 2009

FY

Review / trends

• Revenues include £61m from Cambridge US BPO and ITO businesses

• Profits increased by higher margins in Insurance software offset by loss-making US BPO


• Turnaround in US business as a result of restructuring

• Recovery in US consumer spending

• Leverage Cambridge and Xchanging’s insurance customers to sell large deals

• Gain market share in US claims marketNote 1. Segmental financials before central costs and eliminations

32


Asia Pacific

2.90.4

23.2

3.7

Revenue XEBIT

£m

H1 2008 H1 2009

Review / trends

• Revenues include £20m contribution from India and Australia BPO businesses

• Profits increased through addition of profitable India and Australia BPO businesses


• Multinationals looking to exit Indian captives

• Leverage Tier 3/4 locations and special economic zones in India

• Additional offshoring of onshore processing

• ‘White label’ workers compensation processing in Australia Note

1. Segmental financials before central costs and eliminations

33


Global Procurement

5.7

85.1

4.2

88.0

Revenue XEBIT

£m

H1 2008 H1 2009

Review / trends

• Revenues driven by strong volumes from BAE Systems offsetting weaker trading elsewhere as customers reduce indirect spend

• Profits impacted by investment in global expansion and revenue mix


• High growth market (IDC forecast 16% growth)

• Large scale cross-border deals

• Leverage Cambridge and Xchanging relationships to expand globally


34


Reconciliation of segmental reporting…

Old business line reporting Old business line reporting

£'000Business

Lines InsuranceFinancial Markets

BPS & Central H1 2008

Business Lines Insurance

Financial Markets

BPS & Central

H1 2009 excluding

Cambridge Cambridge

H1 2009 including

Cambridge

Continental Europe 72,222 72,222 81,859 81,859 - 81,859

UKInsurance 67,042 67,042 74,649 74,649 - 74,649Human Resource 20,348 20,348 21,762 21,762 - 21,762Hosting 8,538 8,538 11,668 11,668 - 11,668

AmericasCambridge - - 61,059 61,090Insurance Software 13,442 13,442 13,078 13,078 - 13,078

Global Procurement 84,888 84,888 87,132 87,132 - 87,132

Asia PacificCambridge - - 15,693 15,693BPS - - (11) (11) - (11)

Central 342 342 146 146 - 146

GROUP TOTAL 113,774 80,484 72,222 342 266,822 120,562 87,727 81,859 135 290,283 76,752 367,065

35


Our consistent strategy…

… to become THE global business processor

5 key offerings for: – customer choice

Acquisitions for:– adding volume

Partnering for:– customer trust and ambition

Acquisitions for: – international customer reach

Acquisition for:– adding scale and capability

Processing Centres for:– customer competitiveness

and uniform quality

Grow existingplatforms

Lean Processor

Add new platforms

36


Strategic rationale for Cambridge acquisition…

IT capability underpins electronic automation

Broadens international reach

Accelerates Lean Processor strategy

US and Asia market presence to increase Xchanging’s global appeal to blue chip companies

Indian BPO scale and US aggregation opportunity for "best-shoring"

Indian IT development capability strengthens Xchanging’s ability to build out electronic platforms

Customer baseDiverse customer list (over 500 new customers) with low penetration of major accounts

Margin upsideMargin upside from US BPO restructuring, synergies and arbitrage opportunities in Asia Pacific

37


Our go-to-market strategy…

Policy / Strategy

Core Business

Industry Specific

HR Procurem

entAccountingTechnology

Share the profit and capital upside from productivity improvement, scale advantage and entrepreneurship 50/50. Xchanging bears the implementation investment and deploys reusable assets. Our joint aim is valuable processing platform asset and a sustainable 100% improvement in the Day 1 cost base over 10 years

Deliver better, cheaper processing and procurement category spend. Xchanging provides services to an agreed specification and usage charge or cost baseline and savings profile (gain-share). We offer customers an upside for additional revenue or superior savings on a case by case basis.

Supply better solutions for business processes and information requirements than can be achieved internally or by other suppliers. Xchanging provides the solutions in accordance with a price book, based on licence free, maintenance, usage, installation fee, etc. We listen to customers needs and prioritise enhancements through user groups.

Extend the scope of the services provided by Xchanging in Partnering of Outsourcing to gain additional processing and spend efficiencies for the customer and Xchanging.The price of Straight Through Processing is cost plus an agreed mark up that then becomes the agreed service price in the normal way.

Deploy experts and re-usable assets for supporting specific improvement activities in the business processing value chain, on a project or interim assignment bases.Xchanging charges based on the level of expertise involved and the achievement of agreed deliverables and results. Xchanging published a rate card

38


Lean processing…

4,770 employees

(c. 54% of Group employees)

890 employees


3,150 employees


Global Balancing

… for competitiveness and profitability

xchanging cost for profit · financial review. 3 ... 2. 2007 eps based on weighted average number...

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