2014 FULL YEAR RESULTS PRESENTATION. 26 February 2015

Transcription

1 2014 FULL YEAR RESULTS PRESENTATION 26 February 2015

2 AGENDA 1 Where we are today Review of the year Ken Lever Chief Executive 2 Financial performance David Bauernfeind Chief Financial Officer 3 Business development Summary and outlook Ken Lever Chief Executive 2

3 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 London office in Walbrook 3

4 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 Technology Procurement BPS More to do: delivering performance 4

5 ACHIEVEMENT OF 2014 OBJECTIVES 1 2 Maintain adjusted operating profit Resume growth in Invested in growth and infrastructure 5

6 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 ¹ See 2014 Investor Seminar material: *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. 6

7 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 *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. 7

8 ON THE ROAD TO GROWTH Transformation complete Time to drive growth Fit and competing to win 8

9 FINANCIAL PERFORMANCE David Bauernfeind Chief Financial Officer

10 FINANCIAL INDICATORS Net revenue ( m) Adjusted operating profit ( m) Adjusted operating profit margin (%) Statutory operating profit ( m) Adjusted profit before tax ( m) Adjusted basic EPS (pence) Operating cash flow ( m) Equity free cash flow ( m) (7.6) 33.4 Adjusted cash conversion (%) Net cash ( m) Xchanging s share of net cash ( m) (31.6) 52.8 Economic profit ( m)

11 NET REVENUE 2013 TO 2014 WALK 11

12 INCOME STATEMENT m m Adjusted operating profit Exceptional items (7.1) 29.9 Acquisition costs (6.0) (0.3) Amortisation of acquired intangibles (6.1) (3.2) Statutory operating profit Net finance costs (4.3) (4.0) Share of profit from joint venture Profit before tax Taxation (3.1) (12.9) Profit for the period Adjusted basic EPS (pence)

13 INVESTMENT Acquisitions 2014 m 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 *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. 13

14 ORGANIC INVESTMENT 46.7m Drive cost savings & efficiencies Internal change programmes Technology backbone Salesforce.com Finance SAP HR Workday IT Office 365 Drive revenue growth Product development Product roadmap Xuber London Market MM4 software Refresh 14

15 CASH FROM OPERATIONS m m Adjusted operating profit Exceptional items and other adjustments (19.2) 26.4 Statutory operating profit Depreciation and amortisation Non-cash items / non-cash exceptional items 9.3 (20.0) Share based payments EBITDA (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 Capital expenditure (43.4) (26.6) Operating Cash flow

16 SECTOR PERFORMANCE Adjusted Adjusted Net Adjusted Net Adjusted operating operating Exterrnal operating External operating profit/(loss) profit/(loss) Revenue profit/(loss) Revenue profit/(loss) margin margin m m % m m % Business Processing Services % % Technology % % Procurement 31.3 (2.5) (8.0%) % Corporate - (12.6) - - (15.2) - Total % % 16

17 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 17 business

18 TECHNOLOGY Impact of 2013 LME contract loss Growth of Applications Services business Agencyport Europe* and Total Objects acquisition *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. 18

19 PROCUREMENT Impact of XHRS business exit in 2013 Growth of MM4 New Procurement management team Technology investment Cost saving initiatives across sector 19

20 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 20

21 BUSINESS DEVELOPMENT Ken Lever Chief Executive Officer

22 STRATEGIC DEVELOPMENT 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. Technologyenablement Customer engagement Cost base Talent 22

23 STRATEGIC CONTEXT Technology Innovation Technology Procurement BPS Insight Differentiation Focused offerings to chosen markets 23

24 STRATEGIC CONTEXT Technology Procurement BPS Complex processing Technology component 24

25 STRATEGIC CONTEXT Insurance Software Application Services Insurance software for global market Application services: development, testing, support and integration Technology Procurement BPS Complex processing Technology component 25

26 STRATEGIC CONTEXT Insurance software for global market Application services: development, testing, support and integration Technology Procurement Technology platform Refocused offerings BPS Complex processing Technology component 26

27 THE NEW XCHANGING Technology: becoming engine of growth Xuber + acquisitions*: meaningful growth Application Services growth Technology Procurement Procurement: becoming engine of growth Decisively turned the corner MM4 + Spikes further development of technology platform BPS BPS: stable core business Protect and grow core business around insurance market, banking and capital markets and other verticals *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. 27

28 SPECIFIC AREAS OF FOCUS Technology Xuber Procurement Delivery of contracts won Application Services IoT and Education Platforms Technology platform Spikes Cavell Netsett BPS Binders 360 & Digital 360 Germany & Italy 28

29 SUMMARY AND OUTLOOK Transformation is complete 2015 objectives: Underlying and absolute revenue and profit growth Return to stronger cash generation Returns on investments made 29

30 Q&A

31 APPENDIX

32 AOP 2013 TO 2014 WALK 32

33 EXCEPTIONAL ITEMS m m Lease surrender for Leadenhall Street and related items Distribution from liquidation of CISGI Profit on disposal of subsidiary Fair Value adjustment for AR Enterprise deferred consideration Onerous contract provision release Employee related provision release 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)

34 GROUP NET FINANCE CHARGE 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 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% Bank and other interest received Gain/loss on translation of put option to acquire minority interest Dividends received on AFS assets Total Net Finance Charge in Income Statement (4.3) (4.0) 34

35 EQUITY FREE CASH FLOW AND NET CASH m m Opening net cash Operating cash flow 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

36 XCHANGING NET CASH Group cash m m Xchanging wholly owned entities Xchanging Solutions Enterprise Partnerships Total balance sheet cash Xchanging wholly owned entities Xchanging s share of cash in Xchanging Solutions Xchanging s share of cash in Enterprise Partnerships* Xchanging s share of balance sheet cash Bank and other debt (115.5) (1.2) Xchanging's share of net cash (31.6) 52.8 *Xchanging s share of cash in Enterprise Partnerships is calculated as accrued licence fees and expected dividend payments 36

37 OCF AND ADJUSTED CASH FLOWS m Total Lease Restructuring surrender receipt CISGI liquidation New South Wales contract FDB IFRS 3 Acquisition customer amortisation expenses cash Adjusted Adjusted Operating Profit Exceptionals (7.1) (9.7) 10.3 (0.6) IFRS 3 amortisation (6.1) Acquisitions costs (6.0) Operating Profit 36.6 (9.7) 10.3 (0.6) Depreciation and amortisation (6.1) Other non-cash items (4.1) - - (2.7) 2.5 Share based payments Cash from Operations 75.1 (9.7) 10.3 (0.6) Customer cash deposits (0.7) Net working capital (7.9) (2.7) (1.6) (11.6) Pensions (6.2) (6.2) Provisions (1.6) - (3.0) (3.8) Dividends to minorities (11.2) (11.2) Capital expenditure (43.4) (39.0) Operating cash flow 6.5 (8.0) Cash Conversion 11.6% 17.2% 37

38 ACQUISITIONS m Date of Transaction Payments to 31 December 2013 Payments in Outstanding deferred 2014 (net of consideration cash acquired) Outstanding performance related payments AR Enterprise October MM4 September Xchanging Italy January MachineShop March Agencyport Europe* July FDB July Total Objects December Total Total The acquisition of Spikes Cavell was completed on 26 February 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. 38

39 FAIR VALUE OF ACQUISITIONS Agencyport Europe* Total Objects 4 July December 2014 m m Goodwill Customer contracts and brand Software Cash on acquisition Net assets acquired (5.3) (1.4) Deferred tax (8.6) (1.3) Fair value of consideration *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. 39

40 AGENCYPORT EUROPE* AND TOTAL OBJECTS 2014 Full year results under UK GAAP Agencyport Europe* Total Objects Total m m m Revenue Profit before tax Full year results under UK GAAP Agencyport Europe* Total Objects Total m m m Revenue Profit before tax *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. 40

41 BUSINESS PROCESSING SERVICES 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 % % Financial Services % % Business Processing Services % % 41

42 RECONCILIATION OF TAX CHARGE ON ADJUSTED PROFIT 2014 m Adjusted profit before tax 51.1 Tax on adjusted profit before 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

43 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 (%) 43

44 FOUR YEAR TIMELINE Four Part Action Plan launched Four Part Action Plan complete 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 44 Netsett pilot launched Re-launch of Xuber Introduction of shared services Acquired AR Enterprise in Italy 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 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 Acquisition of Spikes Cavell Analytic Limited BUILDING TECHNOLOGY- ENABLEMENT *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.