HALF YEAR RESULTS 2013...TECHNOLOGY 22 Net revenue +5.4% Xuber revenues up Growth in Application...

46
HALF YEAR RESULTS 2013 Wednesday 31 July 2013

Transcript of HALF YEAR RESULTS 2013...TECHNOLOGY 22 Net revenue +5.4% Xuber revenues up Growth in Application...

Page 1: HALF YEAR RESULTS 2013...TECHNOLOGY 22 Net revenue +5.4% Xuber revenues up Growth in Application Engineering Services business in India and SE Asia Growth in Infrastructure Managed

HALF YEAR RESULTS 2013 Wednesday 31 July 2013

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© 2013 Xchanging plc 1

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YEAR-ON-YEAR IMPROVEMENT IN FINANCIAL PERFORMANCE

Net revenue £270.7m (HY 2012: £254.8m)

Adjusted operating profit £23.0m (HY 2012: £16.0m)

Adjusted operating margin 8.5% (HY 2012: 6.3%)

Operating cash flow £23.5m (HY 2012: £26.6m)

Economic profit £28.4m (HY 2012: £17.1m)

Net cash £90.0m (HY 2012: £62.1m)

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NEW STRUCTURE AND GO-TO-MARKET STRATEGY

7

Our Services

INSURANCE SERVICES

BUSINESS PROCESSING

ENTERPRISE

PROCUREMENT TECHNOLOGY

FINANCIAL SERVICES

Our Industries

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BUSINESS WINS

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GOING FOR GOLD

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Clear objectives

Good progress

One Xchanging initiative drives financial benefit

Drives productivity and optimises cost

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FINANCIAL PERFORMANCE David Bauernfeind

Chief Financial Officer

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© 2013 Xchanging plc © 2013 Xchanging plc

KEY PERFORMANCE INDICATORS

HY 2013 HY 2012 Change

Net revenue (£m)* 270.7 254.8 6.2%

Adjusted operating profit (£m) 23.0 16.0 43.8%

Adjusted operating margin (%) 8.5 6.3 -

Statutory operating profit (£m) 23.3 14.0 66.4%

Adjusted basic EPS (pence) 3.48 2.37 46.4%

Operating cash flow (£m) 23.5 26.6 (11.7%)

Equity free cash flow (£m) 16.1 19.4 (17.0%)

Adjusted cash conversion (%) 74.8 179.4 -

Net cash (£m) 90.0 62.1 44.9%

Economic profit (£m) 28.4 17.1 66.1%

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* Net revenue excludes principal spend on procurement contracts that arises from supplier costs that are passed on to the customer

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PRINCIPAL PROCUREMENT REVENUE

12

400

500

600

700

800

2008 2009 2010 2011 2012

Reve

nue

(£m

)

Revenue profile

Gross revenue Net revenue

Principal revenue is a pass-through with no margin impact

Required under IFRS to report gross revenue for all transactions where we are principal

Balances are significant when considered against our revenue base

No control over the quantum or timing of principal revenues

Net revenue is considered to be a more representative measure of economic value from revenue than statutory revenue and will be used for KPIs from 2013

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XTB DISPOSAL

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Announced 15 May 2013

Xchanging to receive total cash of €40.5m to cover sale proceeds and performance and licence fees due to Xchanging

Service contract between XTB and Deutsche Bank would have expired May 2016

Shareholder approval granted at GM 26 July 2013

Closing date 31 August 2013

Cash proceeds will be partially used to pay down Group’s bank term loan £13.5m

Securities processing will not be classed as a discontinued operation

112.8 106.2 97.4

566.8 530.4 528.0

-

200

400

600

2010 2011 2012

Net Revenue (£m)

Group

XTB

8.9 10.2 9.6

56.1

43.2 50.4

-

20

40

60

2010 2011 2012

Adjusted Operating Profit (£m)

Group

XTB

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REVENUE

14

Net 254.8

Net 270.7

(20.1) Gross 322.7

26.9 6.3 2.8

Gross 347.3

-

50

100

150

200

250

300

350

400

Revenue H1 2012 Revenue growth Revenue shrinkage Acquisition Foreign exchange Revenue H1 2013 £m

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ADJUSTED OPERATING PROFIT

15

16.0

23.0

(11.5)

(10.8)

(0.1)

14.0

1.0 11.3

3.1

-

5

10

15

20

25

30

35

AOP H1 2012 Impact of revenue growth

Impact of revenue

shrinkage

Impact of acquisition

Increase in costs

Cost savings Amortisation &

depreciation

Foreign exchange

AOP H1 2013 £m

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INCOME STATEMENT

HY 2013 HY 2012 £m £m

Adjusted operating profit 23.0 16.0 Exceptional other income 1.9 - Amortisation of acquired intangibles (1.6) (2.0) Statutory operating profit 23.3 14.0 Finance costs (6.2) (7.1) Finance income 3.9 4.6 Share of profit from joint venture 0.2 - Profit before tax 21.2 11.5 Taxation (5.7) (3.6) Profit for the period 15.5 7.9

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CASH FLOW

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HY 2013 HY 2012 £m £m Adjusted operating profit 23.0 16.0 add/(less): Exceptionals and add backs 0.3 (2.0) Statutory operating profit 23.3 14.0 add: Non-cash items (incl. depreciation and amortisation) 12.9 15.4 EBITDA 36.2 29.4 Working capital movements * 9.2 13.9 Movement in provisions and pensions (6.4) (4.3) Cash generated from operations 39.0 39.0 Net capital expenditure (incl. pre-contract costs) (6.7) (7.3) Dividends to non-controlling interests (8.8) (5.1) Operating cash flow 23.5 26.6 less: Taxation (5.6) (5.9) less: Net finance costs (1.8) (1.3) Equity free cash flow 16.1 19.4

* Working capital movements include £6m received for early lease surrender

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NET CASH

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30 June 2013 £m

31 December 2012

£m

30 June 2012 £m

Cash Xchanging Xchanging Solutions Enterprise Partnerships

36.8

4.4 75.7

37.2 4.8

74.4

23.4

4.2 68.4

Total cash 116.9 116.4 96.0

UK bank debt Xchanging

(25.2)

(37.6)

(32.7)

Total UK bank debt (25.2) (37.6) (32.7)

Finance leases and other debt Xchanging Xchanging Solutions

(1.6) (0.1)

(1.8) (0.2)

(1.1) (0.1)

Net cash 90.0 76.8 62.1

£12.4m of UK bank debt repaid during H1 from Xchanging cash

At 30 June 2013 £7.4 million of Enterprise Partnership cash was held in Xetb and XTB

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SECTOR PERFORMANCE

HY 2013 HY 2012

Net external revenue

£m

Adjusted operating

profit/ (loss)

£m

Adjusted operating

profit margin

%

Net external revenue

£m

Adjusted operating

profit/ (loss)

£m

Adjusted operating

profit margin

%

Insurance Services 99.7 20.5 20.6% 97.2 15.6 16.0%

Financial Services 92.3 8.6 9.3% 81.9 5.2 6.3%

Technology 49.0 2.5 5.1% 46.5 2.4 5.2%

Procurement and Other BPO 29.7 (1.3) (4.4)% 29.2 0.3 1.0%

Corporate - (7.3) - - (7.5) -

Total 270.7 23.0 8.5% 254.8 16.0 6.3%

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INSURANCE SERVICES

20.5

8.6

2.5 (1.3)

15.6

5.2 2.4

0.3

(5)

0

5

10

15

20

25

Insurance Services

Financial Services

Technology Procurement and Other BPO

Adjusted operating profit

20

99.7 92.3

49.0

29.7

97.2

81.9

46.5

29.2

0

20

40

60

80

100

120

Insurance Services

Financial Services

Technology Procurement and Other BPO

Net revenue Net revenue +2.6% Growth in core London market platforms Strong IT development revenues Australian workers’ compensation Adjusted operating profit +31.4% London market Phasing of IT development income

Reduction in broking services

HY 2013 HY 2012

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FINANCIAL SERVICES

Net revenue +12.7% AR acquisition Increased volumes Favourable FX impact Adjusted operating profit +65.4% AR acquisition XTB outperformed expectations in H1 Cost reduction program in Fondsdepot Bank

20.5

8.6

2.5 (1.3)

15.6

5.2 2.4

0.3

(5)

0

5

10

15

20

25

Insurance Services

Financial Services

Technology Procurement and Other BPO

Adjusted operating profit

99.7 92.3

49.0

29.7

97.2

81.9

46.5

29.2

0

20

40

60

80

100

120

Insurance Services

Financial Services

Technology Procurement and Other BPO

Net revenue

HY 2013 HY 2012

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TECHNOLOGY

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Net revenue +5.4% Xuber revenues up Growth in Application Engineering Services business in India and SE Asia Growth in Infrastructure Managed Services across customer base Adjusted operating profit +4.2% Impact of sales growth No impact of LME contract change in 2013 to date

20.5

8.6

2.5 (1.3)

15.6

5.2 2.4

0.3

(5)

0

5

10

15

20

25

Insurance Services

Financial Services

Technology Procurement and Other BPO

Adjusted operating profit

99.7 92.3

49.0

29.7

97.2

81.9

46.5

29.2

0

20

40

60

80

100

120

Insurance Services

Financial Services

Technology Procurement and Other BPO

Net revenue

HY 2013 HY 2012

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PROCUREMENT

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Net revenue +1.7% Net of principal spend revenues Revenue growth in US, although lower than anticipated Adjusted operating loss • Changed BAE UK contract impact from 1 January 2013 • HR business exiting its largest customers • Continued investment in USA market

20.5

8.6

2.5 (1.3)

15.6

5.2 2.4

0.3

(5)

0

5

10

15

20

25

Insurance Services

Financial Services

Technology Procurement and Other BPO

Adjusted operating profit/(loss)

99.7 92.3

49.0

29.7

97.2

81.9

46.5

29.2

0

20

40

60

80

100

120

Insurance Services

Financial Services

Technology Procurement and Other BPO

Net revenue

HY 2013 HY 2012

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SUMMARY

Year-on-year improvement in financial performance

No change to management expectations for 2013

Investment for growth and margin improvement

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STRATEGIC DIRECTION Ken Lever

Chief Executive

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OUR PURSUIT

The transformation

Less dependent on major customers

Technology as an enabler to enhance domain strength

Differentiated service offerings through innovation

The goal

Value added solution

Differentiated products and services

Built around technology

Adds value to areas of domain strength

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WHAT SHOULD YOU EXPECT IN 3 YEARS?

Higher quality revenue

Technology-enabled solutions

Growth in line or ahead of the market growth rate

Continuing year-on-year improvement in financial performance

Improving margins

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CREATING VALUE A blended approach to creating value for shareholders

Grow economic

value

Increase shareholder

value

Business strategy: • Revenue growth • Cash margin • Investment • Operating cash flow

Financial strategy: • Dividends • Capital structure • Taxation

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OUTLOOK

Proportional reduction in H2 revenue due to Deutsche Bank securities processing exit, as planned

On track to deliver absolute year-on-year improvement, in line with market expectations

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APPENDIX

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NON-CONTROLLING INTERESTS

36

HY 2013 HY 2012 Non controlling

interests’ share of adjusted profit after

tax (£m)

Non controlling interests’ share of

adjusted profit / (loss) after tax (£m)

Insurance Services XIS/XCS 5.9 3.8 Financial Services XTB 0.1 -

Xchanging Italy - (0.6)

Technology Xchanging Solutions 0.4 0.2 Total Group 6.4 3.4

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EXECUTIVE BOARD

Ken LeverCEO

Andrew BinnsTechnology

Services

Adrian GuttridgeInsurance

Joerg BrandFinancial Services

Nimish SoniEnterprise Services

Ed CrossProcurement

David Bauernfeind

CFO

Stephen ScottGlobal Sales &

Marketing

Jon StratfordStrategy & Corporate

Development

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DEBT COVENANTS

30 June 2013 31 Dec 2012 Test Criteria

Interest Cover 15.4x 16.7x Minimum of 6.0x

Leverage 0.6x 1.0x Maximum of 2.0x

Debt Service 5.0x 5.8x Minimum of 1.0x

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Bank covenants are tested quarterly under the revolving credit and term loan facilities agreement. We have agreed with our bank group that the debt service covenant will be removed following the disposal of the XTB group and associated term loan repayment.

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HEADROOM ON COMMITTED UK BANK FACILITIES

30 June 2013 £m

Term loan facility 16.8

Revolving credit facility 75.0

Total committed facilities 91.8

Cash drawings (25.2)

Bank guarantees/letters of credit (18.9)

Undrawn facility 47.7

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The analysis of headroom under committed and uncommitted credit facilities, presented in the operating and finance review section of the 30 June 2013 results, also contains non-UK and non-bank facilities.

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OVERVIEW OF EP CASH AT 30 JUNE 2013

• Attributable to Xchanging = expected dividends + net intercompany balance + accrued licence and performance fees + contractual share of residual cash

• Attributable to NCI = expected dividends + contractual share of residual cash

Xetb & XTB £5.5m

Attributable to NCI32%

£17.1Xetb and XTB£7.4m

Total Cash in Enterprise

Partnerships £75.7m

Customer Cash Deposits in Fondsdepot Bank

£21.7m

Trade Working Capital

27% £14.8m

£54.0m

Xetb & XTB £1.9m

Attributable to Xchanging

41% £22.1

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GROUP AND CENTRALLY CONTROLLED NET CASH

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Centrally controlled net cash represents Group cash and debt that is not held in Enterprise Partnerships

At 30 June 2013 customer cash deposits offered by FDB contributed £21.7 million to total Group cash

(35,000)

(25,000)

(15,000)

(5,000)

5,000

15,000

25,000

35,000

45,000

55,000

65,000

75,000

85,000

95,000 Ju

n-11

Sep

-11

Dec

-11

Ma

r-12

Jun-

12

Sep

-12

Dec

-12

Ma

r-13

Jun-

13

£'000 Centrally Controlled and Group Net Cash June 2011 - June 2013

Centrally Controlled Net Cash Group Net Cash

2nd payment for XBS acquisition

£6m

1st payment for AR Enterprise

acquisition £10m

1st receipt for Leadenhall lease

surrender £6m

1st payment for XBS acquisition

£4m

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CASH FLOW: RECONCILIATION TO NET CASH MOVEMENT

HY 2013 £m

HY 2012 £m

Movement

Adjusted operating profit 23.0 16.0 7.0

Add/(less): Exceptionals and add backs 0.3 (2.0) 2.3

Statutory operating profit 23.3 14.0 9.3

Add: Non-cash items (incl. depreciation and amortisation) 12.9 15.4 (2.5)

EBITDA 36.2 29.4 6.8

Working capital movements 9.2 13.9 (4.7)

Movement in provisions and pensions (6.4) (4.3) (2.1)

Cash generated from operations 39.0 39.0 -

Net capital expenditure (incl. pre-contract costs) (6.7) (7.3) 0.6

Dividends to non-controlling interests (8.8) (5.1) (3.7)

Operating cash flow 23.5 26.6 (3.1)

Less: Taxation (5.6) (5.9) 0.3

Less: Net finance costs (1.8) (1.3) (0.5)

Equity free cash flow 16.1 19.4 (3.3)

Dividends to shareholders (2.4) - (2.4)

Other (0.5) (2.5) 2.0

Movement in net cash 13.2 16.9 (3.7)

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FINANCIAL SERVICES – BY BUSINESS

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52.8

27.6

11.9

50.4

25.9

5.6

0

10

20

30

40

50

60

Securities Processing Funds Administation - Germany

Funds Administration - Italy

Net Revenue

HY 2013 HY 2012

7.3

1.2

0.1

5.2

1.0

(1.0) (2)

(1)

0

1

2

3

4

5

6

7

8

Securities Processing Funds Administation - Germany

Funds Administration - Italy

Adjusted Operating Profit

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BUSINESS MODEL

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