27th Mar 2013 09:38
Xchanging plc (the 'Company') Annual Report and Accounts and Notice of Annual General Meeting
The Company has today published its Annual Report and Accounts 2012, Notice of Annual General Meeting 2013 and Form of Proxy.
Annual Report and Accounts 2012
The Annual Report and Accounts 2012 has been submitted to the National Storage Mechanism ("NSM") and will be available for viewing shortly: www.morningstar.co.uk/uk/NSM. It is also available on the Company's website: www.xchanging.com at "Annual Report 2012".
Notice of Annual General Meeting 2013
The Company has issued to shareholders its Notice of Annual General Meeting 2013 and Form of Proxy including a map of the venue. The Annual General Meeting will be held on 15 May 2013 at 9.30am at Xchanging, 34 Leadenhall Street, London EC3A 1AX.
In accordance with Listing Rule 9.6.1 a copy of the Notice of Annual General Meeting 2013 and a Form of Proxy have been submitted to the National Storage Mechanism and will be available for viewing shortly.
The Company's Notice of Annual General Meeting 2013 and a map of the venue are available on the Company's website: www.xchanging.com at "Annual Report 2012".
Interim Management Statement
Xchanging will be releasing its next Interim Management Statement on 15 May 2013 at 07:00 (BST).
Disclosure and Transparency Rule 6.3.5
In compliance with the Disclosure and Transparency Rules ('DTR'), a description of the principal risks and uncertainties, a responsibility statement and details of related party transactions are set out below in full unedited text. Capitalised terms used below are, unless otherwise defined in this announcement, as defined in the Glossary at page 142 of the Annual Report and Accounts, and page references also refer to the relevant pages of the Annual Report and Accounts 2012. A condensed set of financial statements was appended to the Company's 2012 full year results announcement issued on 28 February 2013, which included an indication of important events that occurred during the year. The additional DTR disclosures below are taken from the Annual Report and Accounts 2012, which is available on our website www.xchanging.com at "Annual Report 2012".
Principal risks and uncertainties
(Page 24, Annual Report and Accounts 2012)
Xchanging maintains risk registers covering each significant operation, business sector and the Group. We review our risk assessment four times per year, which helps to ensure we have a consistent approach and focus on the right risks. The Board reviews the Group risk register annually.
During 2012 the focus for the business has moved from the Four Part Action Plan of 2011 to the key objectives outlined at the beginning of the year:
·; Compete to win
·; Increase sales from existing customers
·; Achieve " One Xchanging"
·; Year-on-year improvement in financial performance
Focusing upon these activities and addressing the key risks from the beginning of the year, has enabled the business to move to a more stable position going into 2013.
However, the outsourcing market is becoming more sophisticated and is evolving into a spectrum of services from simple to complex.
It is important that we ensure that we continue to evolve our high quality products and services to increase competitive advantage and grow market share.
How we manage risk
We analyse the nature and extent of risks and consider their likelihood and impact, both on an inherent and a residual basis, after taking into account mitigating controls. This allows us to determine how we should manage each risk in order to achieve our strategic objectives.
We divide our risks into strategic, commercial, operational and financial categories:
·; Strategic risks reflect the potential for a significant strategic action or a failure to react to developing trends in the market, to have a financial impact on the economic value of our business.
·; Commercial risks reflect the potential to enter into a critical contract or commercial arrangement that may have an adverse impact on the economic value of our business.
·; Operational risks reflect the potential for the failure of a critical process or procedure to have an adverse impact on the economic value of our business.
·; Financial risks include interest, foreign exchange, tax rate changes, pension valuations and liquidity. Failure to manage these risks could negatively impact the economic value of our business.
Strategic risks
KEY RISK | COMMETARY AND MITIGATING PLAN |
Failure to utilise and exploit technology-enablement for growth
| The rapidly changing nature and impact of technology in the current business environment means that we need to respond to technology trends which are impacting our markets and business model and the business models of our customers. In order to achieve this we are: § Investing in the development of new offerings § Developing innovative value adding customer solutions § Utilising our skilled knowledgeable resources § Reviewing our existing offering to ensure that it meets our customers' requirements Examples of new technology-enabled product offerings are Netsett and Xuber.
In addition, we need to maximise the use of technology within the Group to ensure that we are driving and enabling internal efficiencies and cost savings. |
Failure to grow existing businesses
| Our existing business continues to be subject to pressure from the current economic climate across the organisation. It is important for us to ensure that we retain our existing customers when contracts are renewed. This is being managed by: § Investment by senior management in protecting our existing core businesses § Investment in developing innovative solutions (such as the BPaaS offering) § Looking beyond our existing markets, building upon our proven capabilities and domain expertise § Ensuring the competitive cost advantage from our India operations is delivered to the end customer § Investment in technology-enabled solutions § Active engagement with key customers to ensure mutual agreement positions are achieved § Proactive engagement with TPAs |
Failure to secure new business from both new and existing customers
| There are a number of significant changes in the sectors we operate in. Successfully winning new business is being managed by: § The development of a unified sales strategy which enables selling across business sectors § Clearly defined service offerings and sales strategies that help us to attract customers § Ensuring utilisation of our competitive cost offshore services and technological capabilities § Proactive engagement with TPAs
|
Identification and management of non-profitable businesses | All businesses are subject to review including a robust process of intrinsic economic valuation analysis. This is in order to ensure non-profitable businesses are identified and actions taken to address the issues. Actions taken during the year have resulted in Xchanging currently having no non-profitable businesses.
The recent acquisition of AR by the Kedrios business is an example of how this has been addressed. The opportunity now is to ensure that the synergies of these two businesses are maximised to increase profitability further.
|
Failure to manage the impact of the changing economic environment on our business | With the ongoing economic recession there are risks in the economy which are likely to remain in place for the foreseeable future, affecting our ability to secure new revenue opportunities and manage margins. § Offshoring and cost optimisation projects enable us to conduct our processing activities where they are most cost effective § Proactively researching offshoring sustainability in other locations, and expanding our activities in India Tier-3 cities, such as Shimoga, help to mitigate the inflating Indian cost base § We operate in markets outside the EU and US that are less susceptible to the current economic recession § Quarterly 24-month rolling forecasts help us recognise the impact of the changing financial conditions upon our business and respond accordingly |
Commercial risks
KEY RISK | COMMETARY AND MITIGATING PLAN |
We have a concentration of material new and existing contracts with customers in key markets, which may have a significant impact on the Group's performance
| Partial or full termination of certain customer contracts could result in impairment of goodwill as described in note 14 to the Consolidated financial statements, as well as impacting operational performance. To mitigate this we have a structured service management programme, with dedicated account managers who work closely with our customers utilising performance metrics in order to identify issues early and trigger corrective actions.
Our commercial risks continue to be well managed through legal review, delegated authorities and contract monitoring processes.
|
In certain cases, partners have rights to 'put' their shares to us, creating a cash requirement, or to 'call' our shares for low consideration | Detailed registers enable close monitoring and planning of the implications of all key contractual obligations with partners.
|
The development of, and increased competition within, the Lloyd's and London insurance market
| To mitigate this there is significant engagement with the Lloyd's and London insurance market. We continue to utilise our significant domain expertise in this area in order to establish ourselves as the leading provider to the market using our technology platform to drive change.
|
Increased pricing pressures in the Financial Services sector | Extensive discussions with customers are ongoing to ensure that returns from the key contracts meet with the Group's strategic objectives.
|
Failure to deliver new customers in the US procurement business | New customer opportunities are being explored in the US through a range of sales initiatives and engagement with TPA, in order to ensure that we deliver and build the US procurement business.
|
Operational risks
KEY RISK | COMMETARY AND MITIGATING PLAN |
Our reputation and ultimately our profitability are reliant on successful implementation and delivery of new contracts
| Following contract wins, such as Marsh in 2012, we now have a delivery risk in relation to these contracts. We must also ensure that we continue to strengthen and build upon these relationships as failure to do so will have a significant reputational and financial risk. This is being managed by: § Detailed implementation and delivery plans with strong management control and oversight § Standardised procedures in use for the implementation and delivery of new contracts § Use of experienced employees with strong project, change and people management skills in order to ensure successful implementation |
Our customers demand efficient processing and high levels of service to help them achieve their objectives and protect their reputation. Failure to meet their expectations would in turn have a significant impact upon our reputation and profitability
| We consistently work towards ensuring that our service levels are on target ensuring that we meet our customers' requirements. § Active programme of strategic relationship building § We measure and monitor performance across all functions and focus on being responsive to customer needs, which is one of our core values § We have a clearly defined operating strategy and target operating model § Our operations focus upon improving efficiency through standardisation, near and offshoring § Ongoing focus upon improving processes, controls and performance |
Business disruption, IT system issues or security issues could result in loss of service, loss or compromise of customer and internal data, breach of legal and regulatory obligations and damage to our reputation
| We focus on continued development of business continuity and disaster recovery planning and testing, in conjunction with our customers and suppliers. We seek customer acceptance and agreement of any exposure to ensure that this is aligned to their risk appetite. |
Financial risks
KEY RISK | COMMETARY AND MITIGATING PLAN |
The Group's financial results may be subject to volatility arising from movements in interest rates, foreign exchange rates, pension asset and liability valuations, liquidity and changes in taxation legislation, policy or tax rates
| Our budgeting, forecasting and working capital controls have been strengthened through implementing a quarterly 24-month rolling forecast process and a weekly rolling cash flow forecast covering a 12-week period. With these enhancements our financial risks are well managed, reducing the volatility of our financial results, giving the Board greater medium-term visibility and ensuring we have required credit facilities in place. In addition: § Our Group treasury and UK pension operations are controlled centrally § The Treasury Risk Committee ("TRC") meets on a regular basis and monitors our key financial risk measurements including bank covenant compliance § The TRC operates in accordance with clearly defined limits, policies and procedures authorised by the Board § Regular discussion with the pension trustees, additional contributions to the schemes and prudent assumptions for actuarial valuations control our pension-related risks § Monitoring the impact of possible changes in tax legislation, including VAT, and tax rates on our business operations and taking action to minimise the future financial impact (for example by engaging with tax authorities and external advisers)
|
Directors' statement pursuant to the Disclosure and Transparency Rules
(Page 52, Annual Report and Accounts 2012)
Each of the Directors, whose names and functions are listed in the Board of Directors, on page 46 and 47, confirm that, to the best of each person's knowledge and belief:
·; The financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit/(loss) of the Group and the Company.
·; The Directors' Report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and Group, together with a description of the principal risks and uncertainties that they face.
The Directors are responsible for the maintenance and integrity of the Group's website, www.xchanging.com. Legislation in the UK governingthe preparation and dissemination of financial statements maydiffer from legislation in other jurisdictions.
Name
| Function |
Geoff Unwin
| Chairman |
Ken Lever
| Chief Executive Officer |
David Bauernfeind
| Chief Financial Officer |
Michel Paulin
| Non-executive Director |
Bill Thomas
| Non-executive Director |
Stephen Wilson
| Non-executive Director |
Saurabh Srivastava
| Non-executive Director |
Ian Cormack
| Role: Senior Independent Non-executive Director
|
Related party transactions
(Page 132, Annual Report and Accounts 2012)
The following companies are considered to be related parties of the Group as they hold non-controlling shareholdings in a number of the subsidiaries of the Group.
·; The Corporation of Lloyd's hold a 25.0% interest in Ins-sure Holdings Limited and a 50.0% interest in Xchanging Claims Services Limited for the full year ended 31 December 2012. Some of the directors of Xchanging Claims Services Limited are employees of the Corporation of Lloyd's. The emoluments of these directors were borne by the Corporation of Lloyd's.
·; The International Underwriting Association held a 25.0% interest in Ins-sure Holdings Limited for the full year ended 31 December 2012.
·; Deutsche Bank AG held a 49.0% (including 5.0% through its wholly owned subsidiary) interest in Xchanging etb GmbH for the full year ended 31 December 2012. Some of the directors of Xchanging etb GmbH are employees of Deutsche Bank AG. The emoluments of these directors were borne by Deutsche Bank AG.
·; Allianz Global Investors Kapitalanlagegesellschaft mbH held a 49.0% interest in FdB for the full year ended 31 December 2012.
·; SIA S.p.A. (formerly SIA-SSB S.p.A.) held a 49.0% interest in Kedrios S.p.A. on 1 January 2012. On 7 November 2012, the shareholding of SIA S.p.A. (formerly SIA-SSB S.p.A.) was reduced to 1.3%.
A description of the nature of the services provided to/from these companies by/to the Group and the amount receivable/(payable) in respect of each at 31 December, are set out in the table below:
Sales/(purchases) | Year end receivables/ (payables) | |||
2012 | 2011 | 2012 | 2011 | |
Services provided by/to the Group | £m | £m | £m | £m |
Securities processing services | 98.4 | 104.9 | 8.8 | 10.1 |
Processing, expert and data services | 1.3 | 26.3 | 1.0 | 0.9 |
Property charges | - | 0.3 | - | (0.1) |
Consultancy services | 0.2 | 0.3 | - | - |
IT costs, premises, divisional corporate charges and other services in support of operating activities | (20.5) | (22.6) | (10.0) | (7.4) |
Operating systems, development, premises and other services in support of operating activities | 0.6 | 1.3 | 0.2 | - |
Desktop, hosting, telecommunications, accommodation and processing services | (2.1) | (2.2) | (0.6) | (0.7) |
Consortium relief | - | - | - | (0.4) |
No provisions (2011: £nil) have been recognised against receivables from companies that are related parties.
The Group holds a receivable balance of £6.0 million (€7.3 million) (2011: £5.2 million (€6.2 million)) due from the trustee of the Xchanging Transaction Bank GmbH pension plan, Deutsche Treuinvest Stifrung. This balance is for employee benefits paid out by the Group that are refundable to the Group by the pension trustee.
Transactions with Directors and key management
The compensation disclosure below relates to the Company Directors and key senior managers within the Group, who constitute the people having authority and responsibility for planning, directing and controlling the Group's activities. For the years ended 31 December 2011 and 2012, the key senior managers within the Group are deemed to be the Executive Board members.
2012 | 2011 | ||
Key management compensation (including Directors) | £m | £m | |
Short-term employee benefits | 2.8 | 4.0 | |
Post-employment benefits | 0.1 | 0.3 | |
Share-based payments | 0.9 | 1.2 | |
Termination benefits | 0.3 | 1.4 | |
Total | 4.1 | 6.9 |
A non-interest bearing loan of £34,000 was made to Andrew Binns in November 2012. The loan amount is outstanding at 31 December 2012. The repayment date is April 2013.
Further information regarding Company Directors' remuneration is disclosed in the Remuneration Report on pages 61 to 69.
The total gain made by Directors during the year from the exercise of share options was £nil (2011: £nil).
During 2007, prior to the IPO, loans were provided by the Xchanging BV Employee Benefit Trust to a number of employees including Directors and key management personnel to enable them to purchase shares in Xchanging BV (these shares have been subsequently exchanged for shares in the Company). The loans are non-interest bearing and become repayable on the earlier of the cessation of employment, transfer or disposal of the shares, acceptance of another loan from the Group to refinance the shares and 31 December 2011.
No balances are outstanding from current Directors and key management personnel.
The following table shows balances due from those individuals who were either Directors or members of key management in prior years but have subsequently left the Group and are therefore no longer considered to be related parties of the Group. The information is provided for comparative purposes only.
2012 | 2011 | |
Balance outstanding | Balance outstanding | |
F share Loans | £m | £m |
S Beard | - | 1.0 |
R Houghton | - | 0.7 |
- | 1.7 |
During 2011, Richard Houghton and Steven Beard repaid in full loans provided by the Xchanging BV Employee Benefit Trust.
Melissa Bruno has signed an amended loan agreement allowing her to repay the remaining amount of £48,000, monthly on a means-tested basis commencing on 1 January 2012.
A non-interest bearing loan of £1.2 million (€1.5 million) was granted to Matthias Sohler (key management at the time of the loan) for the purpose of purchasing shares in the Company. Matthias Sohler left the Group in February 2011. In March 2012, Xchanging GmbH initiated a court claim against Matthias Sohler in order to recover a total of £1.4 million owed to the Company and Matthias Sohler initiated a counter claim against the Group to recover £1.2 million of unpaid bonuses. A settlement agreement was reached with Matthias Sohler on 29 January 2013, who agreed to reimburse the Group £0.4 million in total.
Enquiries
Xchanging plc Tel: +44 (0) 207 780 6999
David Bauernfeind, Chief Financial Officer
Alexandra Hockenhull, Head of Corporate Communications and Investor Relations
Maitland Tel: +44 (0) 207 379 5151
Neil Bennett
George Hudson
Emma Burdett
About Xchanging
What we are
Xchanging provides business processing, technology and procurement services internationally for customers across multiple industries.
What we do
Xchanging brings innovation, thought leadership and passion to its customers' businesses so as to enhance performance and value. Our values are embedded into everything we do.
What we want to be
Xchanging wants to be regarded as the best provider in its chosen markets by delivering services that are recognised for outstanding quality, reliability and innovation.
Related Shares:
XCH.L