Xchanging plc Full Year Results 2012

Thursday 28 February 2013

Agenda

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• 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

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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

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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

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Industries we serve