Xchanging plc Full Year Results 2012
Thursday 28 February 2013
Agenda
CONFIDENTIAL © Xchanging 2012, No part of this document may be circulated, quoted or reproduced without prior approval of Xchanging. 1
• Introduction • Achievements in 2012 • Operating highlights • Financial performance • Business development • Outlook
Ken Lever, Chief Executive David Bauernfeind, Chief Financial Officer Ken Lever, Chief Executive
Year-on-year improvement in financial performance
CONFIDENTIAL © Xchanging 2012, No part of this document may be circulated, quoted or reproduced without prior approval of Xchanging.
• Adjusted revenue £668.3m (2011: £650.0m)
• Adjusted operating profit £50.4m (2011: £43.2m)
• Adjusted operating margin 7.5% (2011: 6.6%)
• Operating cash flow £62.6m (2011: £35.9m)
• Net cash £76.8m (2011: £45.2m)
• Return on invested capital 28.0% (2011: 18.3%)
2
2012 – The end of the beginning
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• Restored confidence
• Became fit
• Competed to win
• Established foundations for growth
3
Operating highlights: Insurance Services
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• Strengthened position with Lloyd’s
• Launched new products
• Started global expansion
Operating highlights: Financial Services
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• Building broader base
• Resolved our last loss-making business
Operating highlights: Technology
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• Improved performance
• Launched Xuber/early contract with Marsh
• Joint venture with YTL
Operating highlights: Procurement
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• Implementation of new contracts
• Launched Vault
Operating highlights: Sales & Marketing
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• Internal infrastructure
• Channels to market
Compete to win new business
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Sydney Water Crawford University of South Australia Q-Re
Grow sales to existing customers
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Lloyd’s Gatwick Marsh
Lenovo
a South East Asian airline
an energy trader in
Switzerland
CBRE
LEADERS IN THEIR FIELD
Refreshed executive leadership team
Ken Lever CEO
Andrew Binns Technology
Services
Adrian Guttridge Insurance
Joerg Brand Financial Services
Nimish Soni Enterprise Services
Ed Cross Procurement
David Bauernfeind
CFO
Stephen Scott
Global Sales & Marketing
Jon Stratford Strategy & Corporate
Development
Subramanian Gopalaratnam
Head of Innovation
11
Major Loss Award (Japanese earthquake)
Awards
Best Business Continuity Approach of the Year (KPMG engagement)
Technological Initiative
of the Year (ECF)
Excellence in return to Work Award & Improving client
performance
One to Watch (Netsett)
E BUSINESS AWARD (ECF & E Accounts)
'Star Performer' - Annual
Procurement Outsourcing (PO) Assessment report (Procurement)
Reseller of the Year UK award (Technology)
12
Financial performance David Bauernfeind, Chief Financial Officer
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Key Performance Indicators – continuing operations
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2012 2011 Change
Adjusted revenue (£m) 668.3 650.0 2.8%
Adjusted operating profit (£m) 50.4 43.2 16.7%
Adjusted operating margin (%) 7.5 6.6 90bps
Statutory operating profit (£m) 46.0 6.6 597.0%
Adjusted basic EPS (pence) 10.58 8.01 32.1%
Operating cash flow (£m) 62.6 35.9 74.6%
Equity free cash flow (£m) 50.3 21.3 136.2%
Adjusted cash conversion (%) 122.0 112.0 1,000bps
Net cash (£m) 76.8 45.2 69.9%
Revenue
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650.0
668.3
1.9
6.2 3.5
20.3
12.7
59.1
Adjusted revenue from continuing operations 2011
Acquisition Disposals Impact of reseller revenue
Revenue shrinkage Revenue growth Currency adjustments
Adjusted revenue from continuing operations 2012
£m
Adjusted operating profit
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43.2
50.4 2.5
11.1
3.1 1.6 16.0
7.2 1.8
0.5
Adjusted operating profit from continuing
operations 2011
Net acquistions & disposals
Investment in US
procurement business
Impact of revenue
shrinkage on adjusted
operating profit
Impact of revenue
growth on adjusted
operating profit
Net cost savings
Cost Inflation (Inlcuding
Salary)
Depreciation & Amortisation
Foreign Exchange
Adjusted operating profit from continuing
operations 2012
£m
Income statement
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2012 2011 £m £m
Adjusted operating profit - continuing 50.4 43.2
Exceptional costs: - restructuring costs - (18.4) - other - (13.4) Acquisition – related expenses (0.4) - Amortisation of acquired intangibles (4.0) (4.8) Statutory operating profit - continuing 46.0 6.6 Finance costs (14.5) (19.1)
Finance income 9.9 10.0
Share of profit from joint venture 0.1 -
Profit/(loss) before tax – continuing 41.5 (2.5)
Taxation (13.1) (5.9)
Profit/(loss) for the year - continuing 28.4 (8.4)
Discontinued operations - 4.5
Profit/(loss) for the year 28.4 (3.9)
Non-controlling interests
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2012 2011
Non-controlling interests’ share of
adjusted profit/(loss) after
tax £m
Non-controlling interests’ share
of adjusted profit/(loss) after
tax £m
Insurance Services
- XIS/XCS1 8.9 7.6
Financial Services - XTB2 (2.0) (1.7)
- Kedrios/AR3 (0.8) (1.7)
Technology - Xchanging Solutions 0.3 1.4
Total Group – continuing operations 6.4 5.6
1 Non-controlling interest for the Insurance Services sector in 2012 represented 23.7% of the total adjusted operating profit for the sector (2011: 20.8%) 2 In 2012, and 2011, higher profits under German GAAP due to a pension gain. Non-controlling interest only allocated proportion of IFRS adjustments i.e. a share of losses due to pension gain being taken through other comprehensive income under IFRS. 3Non-controlling interest’s share in Kedrios diluted from 49.01% to 1.3% on 7 November 2012.
Cash flow – continuing operations
CONFIDENTIAL © Xchanging 2012, No part of this document may be circulated, quoted or reproduced without prior approval of Xchanging. 19
2012 2011 £m £m Adjusted operating profit 50.4 43.2 less: Exceptionals and add backs* (4.4) (36.6) Statutory operating profit 46.0 6.6 add: Non-cash items (incl. impairments, depreciation, amortisation) 32.0 52.1 EBITDA 78.0 58.8 Working capital movements** 13.9 2.5 Movement in provisions and pensions (6.2) (0.2) Cash generated from operations 85.7 61.1 Net capital expenditure (incl. pre-contract costs) (15.5) (17.5) Dividends to non-controlling interests (7.6) (7.7) Operating cash flow 62.6 35.9 less: Taxation (9.8) (9.7) less: Net finance costs (2.5) (4.9) Equity free cash flow 50.3 21.3
*This comprises exceptional items (2012: £nil, 2011: £31.8 million), amortisation of intangible assets previously unrecognised by acquired entities (2012: £4.0 million, 2011: £4.8 million) and acquisition-related expenses (2012: £0.4million, 2011: £nil).
** Working capital movements include positive customer cash accounts movement of £9.1 million (2011: £1.2 million)
Net cash at 31 December
Net Cash 2012 £m
2011 £m
Cash Xchanging 37.2 30.3 Xchanging Solutions 4.8 4.9 Enterprise Partnerships 74.4 62.9 Total cash 116.4 98.1
UK bank debt Xchanging (37.6) (50.9) Total UK bank debt (37.6) (50.9)
Finance leases and other debt Xchanging (1.8) (1.8) Xchanging Solutions (0.2) (0.2)
Net cash 76.8 45.2
20
Overview of EP Cash at 31 Dec 2012
Trade Working Cap20%
£10.8m
Attributable to Xch53%
£28.4m £53.7m
Customer cash accounts in Fondsdepot Bank
£20.7m
Attributable to MI27% £14.5m
Total Cash in Enterprise Partnerships
£74.4m
21
• Attributable to Xchanging = expected dividends + net intercompany balance + accrued licence and performance fees + contractual share of residual cash
• Attributable to MI = expected dividends + contractual share of residual cash
Acquisition of AR Enterprise S.r.l. – opening balance sheet
31 October 2012 £m €m Note
Purchase price 20.0 24.9 1
Net assets 1.2 1.6
Intangibles identified 10.3 12.8 2
Deferred tax (3.2) (4.0)
Goodwill 11.7 14.6
Note 1: €12.9m paid on acquisition, £10.4m / €12.9m deferred contingent consideration (discounted to £9.6m/€12.0m) Note 2: Customer contracts (£6.7m/€8.3m) and software (£3.6m/€4.4m) identified
22
Sector performance
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2012 2011
Adjusted external revenue
Adjusted operating
profit
Adjusted operating
profit margin
Adjusted external revenue
Adjusted operating
profit
Adjusted operating
profit margin
£m £m % £m £m %
Insurance Services 197.5 37.5 19.0 189.0 36.6 19.3
Financial Services 163.0 10.6 6.5 179.8 12.3 6.8
Technology 98.8 9.6 9.7 97.9 7.0 7.2
Procurement and Other BPO 209.0 8.0 3.8 183.3 7.2 3.9
Corporate - (15.3) - (19.9)
Total 668.3 50.4 7.5 650.0 43.2 6.6
Insurance Services
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Revenues +4.5%
• Volumes & new services in London Market Platforms
• Australian workers’ compensation
• Broking services discounts Adjusted operating profit +2.5%
• London Market • Broking Services
Adjusted external revenue
2011 2012
Adjusted operating profit 36.6
12.3 7.0 7.2
37.5
10.6 9.6 8.0
0.0
10.0
20.0
30.0
40.0
Insurance Services
Financial Services
Technology Procurement and Other BPO
£m
189.0 179.8
97.9
183.3 197.5
163.0
98.8
209.0
0.0
50.0
100.0
150.0
200.0
Insurance Services
Financial Services
Technology Procurement and Other BPO
£m
Financial Services
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Revenues - 9.3%
• Stable volumes • Adverse FX impact Adjusted operating profit -13.8%
• 2011 cost savings • Adverse FX impact • Reduced Kedrios loss • AR contribution; two months • Italy integration costs
Adjusted external revenue
2011 2012
Adjusted operating profit
189.0 179.8
97.9
183.3 197.5
163.0
98.8
209.0
0.0
50.0
100.0
150.0
200.0
Insurance Services
Financial Services
Technology Procurement and Other BPO
£m
36.6
12.3 7.0 7.2
37.5
10.6 9.6 8.0
0.0
10.0
20.0
30.0
40.0
Insurance Services
Financial Services
Technology Procurement and Other BPO
£m
Technology
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Revenues +0.9%
• Reseller programme FY impact • Data Integration • Xuber • Existing customers Adjusting operating profit +37.1%
• 2011 cost savings • Growth in higher margin sales • Onerous lease
Adjusted external revenue
Adjusted operating profit
189.0 179.8
97.9
183.3 197.5
163.0
98.8
209.0
0
50
100
150
200
Insurance Services
Financial Services
Technology Procurement and Other BPO
£m
36.6
12.3 7.0 7.2
37.5
10.6 9.6 8.0
0.0
10.0
20.0
30.0
40.0
Insurance Services
Financial Services
Technology Procurement and Other BPO
£m
2011 2012
Procurement and Other BPO
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Adjusted external revenue
Adjusted operating profit
189.0 179.8
97.9
183.3 197.5
163.0
98.8
209.0
0
50
100
150
200
Insurance Services
Financial Services
Technology Procurement and Other BPO
£m
Revenues +14.0%
• Principal revenue • Increase in resourcing volumes • FY impact – contracts won in
2011 • Q1 disposal of resourcing
business Adjusted operating profit +11.1%
• Investment in new contracts in North America and EMEA
• Restructuring as UK prepares for 2013
• Growth in Other BPO
36.6
12.3 7.0 7.2
37.5
10.6 9.6 8.0
0.0
10.0
20.0
30.0
40.0
Insurance Services
Financial Services
Technology Procurement and Other BPO
£m
2011 2012
Summary
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• Year-on-year improvement in financial performance
• Dividend reinstated
• Financial discipline and strong cash flow fund investment
Adding value, inspiring innovation
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Business Development
Ken Lever, Chief Executive
Moving up the value chain
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Business model
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Overarching themes
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Overarching themes
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FOCUS
DIFFERENTIATE
Going for gold
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Outlook
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• Accelerate transformation process
• Build on foundations established in 2012 – incremental growth
• Year-on-year improvement in financial performance
• Innovation and technology-enablement to create greater value
• Broaden customer base and differentiate
Adding value, inspiring innovation
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Appendix
Board of Directors
Stephen Wilson Non-Executive
Director
Ian Cormack Non-Executive
Director
Chairman Geoff Unwin
David
Bauernfeind CFO
Michel Paulin Non-Executive
Director
Saurabh Srivastava Non-Executive
Director
Ken Lever CEO
Bill Thomas Non-Executive
Director
37
Procurement principal revenue 2005 – 2012 (£m)
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Principal Revenues from categories discontinued at the end of in 2012 represent £11m of Revenue.
70
80
90
100
110
120
130
140
150
160
170
2005 2006 2007 2008 2009 2010 2011 2012
Average net cash
CONFIDENTIAL © Xchanging 2012, No part of this document may be circulated, quoted or reproduced without prior approval of Xchanging. 39
20
30
40
50
60
70
80
Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12
£m
Xchanging Group Net Cash - 2012
Group Net Cash (excl. Customer Cash in FDB) Group Net Cash (incl. Customer Cash in FDB)
2012 Avg Group Net Cash (excl.Customer Cash in FDB) 2012 Avg Net Cash (incl. Customer Cash in FDB)
AON put option payment
AR acquisition
Cash conversion
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Cash conversion 2012 £m
2011 £m
Adjusted operating profit 50.4 43.2
Operating cash flow 62.6 35.9 Add back cash outflows associated with exceptional items
- Restructuring 7.8 14.9
- relating to current year programmes - 10.0
- relating to previous year programmes 7.8 4.9
- Contract settlements - (1.2)
- Acquisition-related expenses – administrative expenses 0.2 -
- Movement customer cash accounts held by FdB (9.1) (1.2)
Adjusted operating cash flow 61.5 48.4
Adjusted cash conversion 122.0% 112.0%
Provisions movements
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29.2
24.9
7.3
0.5
1.5
9.6
Provisions at beginning of the year
Released Provided Utilised Foreign exchange movements
Provisions at end of the year
Covenant test
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2012 2011 Test Criteria
Interest Cover 16.7x 18.4x Minimum of 6.0x
Leverage 1.0x 1.1x Maximum of 2.0x
Debt Service 5.8x 3.0x Minimum 0.5x
Bank covenants are tested quarterly under the revolving credit and term loan facilities agreement
Headroom on committed bank facilities
2012 £m
Term loan facility 20.0
Revolving credit facility 75.0
Total committed facilities 95.0
Cash drawings (37.6)
Bank guarantees/letters of credit (18.1)
Undrawn facility 39.3
The facilities mature in August 2015. At the year end date, Xchanging plc also had a £10.0 million uncommitted overdraft facility available.
43
Financial Services
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2012 Revenue (£m)
2012 Adjusted operating profit/(loss) (£m)
FdB 52.6 3.6
XTB 97.4 9.6
Xchanging Italy 13.0 (2.7)*
Other - 0.1
Total 163.0 10.6
*Xchanging Italy includes Kedrios loss of £1.8m, provisions of £1.2m relating to the integration of AR and a profit in AR of £0.3m
Business Model
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Insurance services
Financial services
Enterprise services
Infrastructure Management services
Insurance software (Xuber)
Application management services
Sourcing
Business Processing Services Technology Procurement
Sector
Service
• Policy & Claims administration
• Broking Services Processing
• Workers Compensation
• Securities processing
• Investment account, fund and portfolio administration
• Banking services
• Finance & Accounting
• Procure to pay • Analytics • Human resources • Customer
administration (CRM)
• Industry specific services
• Cloud enablement
• Security services • Network &
systems management services
• Data centre & infrastructure services
• Managed application services
• Insurance Software (commercial insurance software for insurers, reinsurers, brokers and managing agents)
• Application lifecycle management
• Enterprise application integration services
• Mobility & location-based Services
• Engineering services (CAD/CAM)
• Analytics • Testing services
• Sourcing & category management
• Analytics • Supply chain
What we do
Education
Manufacturing Transportation, travel & leisure
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FMCG Retail
Energy & Utilities Real Estate Automotive
Public Sector Aerospace & Defence
FINANCIAL SERVICES
INSURANCE
Industries we serve