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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
© 2015 Xchanging plc
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
© 2015 Xchanging plc
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
© 2015 Xchanging plc
ACHIEVEMENT OF 2014 OBJECTIVES
5
Maintain adjusted
operating profitResume growth in 2015
1 2
Invested in growth and infrastructure
3
© 2015 Xchanging plc
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
© 2015 Xchanging plc
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
*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.
© 2015 Xchanging plc
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
© 2015 Xchanging plc11
NET REVENUE 2013 TO 2014 WALK
© 2015 Xchanging plc12
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
© 2015 Xchanging plc13
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
*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.
© 2015 Xchanging plc
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
© 2015 Xchanging plc15
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
© 2015 Xchanging plc16
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%
© 2015 Xchanging plc17
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
© 2015 Xchanging plc18
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.
© 2015 Xchanging plc19
PROCUREMENT
Impact of XHRS business exit in 2013
Growth of MM4
New Procurement management
team
Technology investment
Cost saving initiatives across sector
2014 2013
© 2015 Xchanging plc20
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
© 2015 Xchanging plc
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
© 2015 Xchanging plc
STRATEGIC CONTEXT
23
BPS
Technology Procurement
Technology Innovation
Insight Differentiation
Focused offerings to chosen markets
© 2015 Xchanging plc
STRATEGIC CONTEXT
24
Complex processing
Technology component
BPS
Technology Procurement
© 2015 Xchanging plc
STRATEGIC CONTEXT
25
Complex processing
Technology component
BPS
Insurance software for global market
Application services: development, testing,
support and integration
Procurement
Insurance
Software
Application
Services
Technology
© 2015 Xchanging plc
STRATEGIC CONTEXT
26
Complex processing
Technology component
BPS
Insurance software for global market
Application services: development, testing,
support and integration
TechnologyTechnology platform
Refocused offeringsProcurement
© 2015 Xchanging plc
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
*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.
© 2015 Xchanging plc
SPECIFIC AREAS OF FOCUS
28
BPS
Technology Procurement
NetsettBinders 360 &
Digital 360
Germany &
Italy
Xuber
Application
Services
IoT and
Education
Platforms
Delivery of
contracts won
Technology
platform
Spikes Cavell
© 2015 Xchanging plc
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
Q&A
APPENDIX
© 2015 Xchanging plc32
AOP 2013 TO 2014 WALK
© 2015 Xchanging plc33
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
© 2015 Xchanging plc34
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)
© 2015 Xchanging plc35
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
© 2015 Xchanging plc36
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
© 2015 Xchanging plc37
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%
© 2015 Xchanging plc38
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.
*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.
© 2015 Xchanging plc39
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
*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.
© 2015 Xchanging plc40
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
*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.
© 2015 Xchanging plc41
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%
© 2015 Xchanging plc42
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
© 2015 Xchanging plc43
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 (%)
© 2015 Xchanging plc44
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.