2013 FINAL RESULTS PRESENTATION - DXC …...XCHANGING NET CASH Group Cash 31 December 2013£m 31...

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.