8th Apr 2011 09:00
Xchanging plc (the 'Company') Annual Report and Accounts and Notice of Annual General Meeting
The Company has today published its Annual Report and Accounts 2010, Notice of Annual General Meeting 2011 and Form of Proxy.
Annual Report and Accounts 2010
The Annual Report and Accounts 2010 has been submitted to the National Storage Mechanism and will be available for viewing shortly. It is also available on the Company's website: www.xchanging.com at "Annual Report 2010".
Notice of Annual General Meeting 2011
The Company has issued to shareholders its Notice of Annual General Meeting 2011 and Form of Proxy including a map of the venue. The Annual General Meeting will be held on 18 May 2011 at 10.00 am 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 2011, Form of Proxy and Letter of Availability have been submitted to the National Storage Mechanism and will be available for viewing shortly.
The Company's Notice of Annual General Meeting 2011 and a map of the venue are available on the Company's website: www.xchanging.com at "Annual Report 2010".
Interim Management Statement
Xchanging will be releasing its next Interim Management Statement on 16 May 2011 at 07:00 (BST). This will be followed by a conference call at 08:00 (BST) which will be hosted by Ken Lever (Acting Chief Executive Officer and Chief Financial Officer). The conference call dial-in details will be provided in the Interim Management Statement.
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 141 of the Annual Report and Accounts 2010, and page references also refer to the relevant pages of the Annual Report and Accounts 2010. A condensed set of financial statements was appended to the Company's 2010 full year results announcement issued on 1 March 2011, 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 2010, which is available on our website www.xchanging.com at "Annual Report 2010".
Principle risks and uncertainties
(page 39, Annual Report and Accounts 2010)
Xchanging maintains risk registers covering each significant operation, region and the Group. We review our whole risk hierarchy twice a year, which helps to ensure we have a consistent approach and focus on the right risks. The Board approves the Group risk register annually.
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.
A year of significant change has heightened certain key risks and uncertainties. During 2010 we experienced market conditions where it became extremely difficult to grow revenues and customers put us under increasing margin pressure. In addition the business performance issues within Kedrios and parts of our Cambridge acquisitions have required us to take decisive action in order to restore the value of the Group and to reduce the cash outflows being experienced.
The immediate challenges faced by the Group will be addressed by a Board-approved four-part plan, in particular:
·; performing a strategic and intrinsic value review and addressing our underperforming businesses
·; generating operational improvements by reducing our infrastructure and central costs to match the size and scale of the business
·; re-focusing our market strategy to grow revenue
·; improving our cash flow and ensuring our funding arrangements are adequate and efficient.
The plan can only be achieved whilst having the continued confidence of our shareholders, customers and our people, and we are completely focused on delivering the steps necessary to achieve this.
How we manage risk
We divide our risks into strategic, commercial, operational and financial categories:
·; Strategic risks reflect the potential for a significant strategic action to have a financial impact on the economic value of our business.
·; Commercial risks and contracting risks reflect the potential to enter into a critical contract or commercial arrangement which 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 risks such as interest, foreign exchange, tax, pension valuations and liquidity. Failure to manage these risks could negatively impact the economic value of our business.
Strategic risks | ||
Key risk | Commentary and mitigating plan | Further information |
Successful and timely execution of the four-part plan is fundamental to achieving our long-term profitability and cash generation goals.
| The four-part plan is fully explained in the CEO's statement.
• Execution risk will be addressed through strong central oversight.
| CEO's statement, Action Plan for 2011 - see page 20 |
We must be able to anticipate and manage changes in the economic environment, including an inflating cost base in India. | Although there are some signs that the economic recession is easing, these risks are likely to remain for the foreseeable future, affecting our ability to secure new revenue opportunities and manage margin.
• Clearly defined service offerings and sales strategies help us to attract customers.
• Offshoring enables us to conduct our processing activities where they are most cost effective.
• We are establishing quarterly 18-month rolling forecasts to help us respond to changing financial conditions. | CEO's statement, Action Plan for 2011 - see page 20 |
Commercial risks | ||
Key risk | Commentary and mitigating plan | Further information |
We may be exposed to complex and technical contractual terms with key customers. Breaching contracts could lead to customer relationship issues and potential financial penalties.
In certain cases, partners have rights to 'put' their shares to us, creating a cash requirement, or to 'call' our shares for little consideration. | Our commercial risks continue to be well managed through legal review, delegated authorities and contract monitoring processes.
• Clearly defined partnership governance structures help to identify and resolve potential issues.
• The embedded delegated authorities process requires senior management involvement for complex transactions.
• Detailed registers enable close monitoring of all key contractual obligations with partners.
• Structured service management identifies issues early and triggers corrective actions.
| Enterprise Partnerships - see page 12 |
Operational risks | ||
Key risk | Commentary and mitigating plan | Further information |
Our reputation and ultimately our profitability are reliant on:
• successfully implementing large-scale partnerships and outsourcing contracts
• integrating new businesses and divesting unprofitable businesses
• identifying and acquiring the right businesses to drive profitable and cash-generative growth and ultimately economic value. | We have successfully completed the realignment of new operations in 2010, such as the new investment accounts in Germany.
Following the issues faced by the Group due to the acquisitions of Cambridge and Kedrios, the Group is developing new investment criteria. No further acquisitions will be completed until these criteria have been approved by the Board.
• We apply standard procedures for implementing new partnerships.
• Rigid approval processes require defined standard deliverables.
• Experienced employees with strong project, change and people management skills ensure continuity of service and retention of employees.
| CEO's statement, Action Plan for 2011 - see page 20 |
Our customers and partners demand efficient processing and high levels of service to help them achieve their objectives and protect our reputation.
| Service levels continue to improve, as measured by our customers.
• 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 model.
• Our production function focuses on improving efficiency through standardisation, nearshoring and offshoring.
• Our quality function focuses on improving processes, controls and performance.
| How we deliver - see page 8 |
Continuing to retain our key personnel and recruit new talented individuals is key to our success.
This includes ensuring we have robust succession plans in place at Board level | The change in CFO and other senior key positions in 2010 were well managed. The number of changes, in conjunction with the sudden departure of our CEO, did impact our succession plans for the CEO role.
• We are recruiting for a new CEO and will refresh our CEO succession plan.
• Retention plans are in place for key employees.
• We have an established structure for employee performance and development monitoring.
• A clear recruitment strategy and graduate programme attract high-potential employees.
• Leadership training schemes underpin our succession plans.
|
Chairman's statement - see page 16
Our people - see page 13 |
Our service delivery and reputation are highly reliant on business continuity and information security.
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 continue to work with customers to understand their requirements, in addition to continuously improving and achieving relevant quality certifications to support our internal requirements.
• We have clearly defined information security policies and protocols.
• We focus on continued development of business continuity and disaster recovery planning, and testing.
• The Group Information Steering Committee leads teams within each region. | - |
Financial risks | ||
Key risk | Commentary and mitigating plan | Further information |
The Group's financial results may be subject to volatility arising from movements in interest, foreign exchange, taxation rates, pension asset and liability valuations and liquidity. | Our budgeting, forecasting and working capital controls are being strengthened through implementing a quarterly 18-month rolling forecast process.
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.
• Our Group treasury and pension operations are controlled centrally.
• The Treasury Risk Committee monitors our financial KPIs and bank covenants, in accordance with clearly defined 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.
| OFR - see page 24 |
Directors' statement pursuant to the Disclosure and Transparency Rules
(page 45, Annual Report and Accounts 2010)
Each of the Directors, whose names and functions are listed in the Board of Directors, on page 42, confirm that, to the best of each person's knowledge and belief:
·; the Group financial statements, which have been 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 business review and Directors' report contained in the Annual Report include a fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncertainties that they face (see pages 2 to 41).
The Directors are responsible for the maintenance and integrity of the Group's website, www.xchanging.com. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Name | Function |
Nigel Rich | Executive Chairman |
Ken Lever | Acting Chief Executive Officer and Chief Financial Officer |
Dennis Millard | Senior Non-Executive Director |
Stephen Brenninkmeijer | Non-Executive Director |
Johannes Maret | Non-Executive Director |
Pat O'Driscoll | Non-Executive Director |
Michel Paulin | Non-Executive Director |
Related party transactions
(page 129, Annual Report and Accounts 2010)
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 Xchanging plc and can exert significant influence over those subsidiaries.
·; The Corporation of Lloyd's held a 25% interest in Ins-sure Holdings Limited and a 50% interest in Xchanging Claims Services Limited for the full year ended 31 December 2010. 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% interest in Ins-sure Holdings Limited for the full year ended 31 December 2010.
·; Deutsche Bank AG held a 44% interest in Xchanging etb GmbH for the full year ended 31 December 2010. 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.
·; Aon Limited held a 50% interest in Xchanging Broking Services Limited for the full year ended 31 December 2010. Some of the directors of Xchanging Broking Services Limited are employees of Aon Limited. The emoluments of these directors were borne by Aon Limited.
·; Allianz Global Investors Kapitalanlagegesellschaft mbH held a 49% interest in Fondsdepot Bank GmbH for the full year ended 31 December 2010.
In addition:
·; During the prior period Cambridge Integrated Services Group Inc., a subsidiary of the Group, entered into a contract with Campagnie Pour Assistance Technique et Investissements S.A. ('CATISA') to provide consulting services, business development and procurement services. CATISA is no longer considered to be a related party of the Group; the information is included for comparative purposes only.
·; Scandent Holdings Mauritius Limited (SHML), the previous owner of Cambridge Solutions Limited, was considered to be a related party of the Group at 31 December 2009 by virtue of the fact that its directors had representation on the board of Cambridge Solutions Limited. During 2010, SHML ceased to have representation on the board and therefore is no longer considered to be a related party of the Group. The information is included for comparative purposes only.
·; During the year ended 31 December 2010, Xchanging Italy S.r.l. acquired a 51% shareholding in Kedrios S.p.A (Kedrios). The remaining 49% shareholding is held by SIA-SSB S.p.A. who is also represented on the Kedrios management board. As such, SIA-SSB S.p.A. exercises significant influence over a subsidiary of the group and is therefore considered to be a related party of the group for the year to 31 December 2010.
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) | ||||
2010 | 2009 | 2010 | 2009 | ||
Services provided by/to the Group | £'000 | £'000 | £'000 | £'000 | |
Securities processing services | 107,124 | 116,881 | 26,909 | 6,074 | |
Processing, expert and data services | 39,833 | 40,699 | 2,136 | 6,432 | |
Property charges | 783 | 648 | (302) | - | |
Consultancy, business development and procurement services | 4,652 | 4,789 | - | (1,570) | |
IT costs, premises, divisional corporate charges and other services in support of operating activities | (24,732) | (27,738) | (13,391) | (8,907) | |
Operating systems, development, premises and other services in support of operating activities | 143 | (312) | (27) | 141 | |
Desktop, hosting, telecommunications, accommodation and processing services | (4,176) | (4,279) | (1,474) | (1,624) | |
Current accounts | 7 | - | - | 4,679 | |
There have been provisions totalling £9,000 (2009: £408,000) recognised against receivables from related parties.
Transactions with Directors and key management
The compensation disclosure below relates to the Xchanging plc 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, being the Xchanging Management Board.
2010 | 2009 | ||
Key management compensation (including Directors) | £'000 | £'000 | |
Short-term employee benefits | 6,327 | 7,513 | |
Post-employment benefits | 288 | 114 | |
Share-based payments | 774 | 687 | |
Termination benefits | 805 | 205 | |
8,194 | 8,519 |
Further information regarding Xchanging plc Directors' remuneration is disclosed in the remuneration report on pages 53 to 60 which forms part of these financial statements.
The total gain made by Directors and key management during the year from the exercise of share options was £1,845,000 (2009: £2,185,000).
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 Xchanging plc). 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.
Richard Houghton is required to repay his loan on or before 31 March 2012. A mortgage has been taken over his shares to secure this loan extension. Melissa Bruno repaid £267,000 in January 2011, and her loan agreement will be amended to allow a staged repayment of the remaining amount of £51,000 upon arm's length commercial terms.
The balances due from the Directors and key management in relation to loans provided by the Xchanging BV Employee Benefit Trust and the carrying amounts in the consolidated financial statements are:
2010 | 2009 | ||||
Balance outstanding | Carrying amount | Balance outstanding | Carrying amount | ||
£'000 | £'000 | £'000 | £'000 | ||
S Beard | 1,088 | 1,088 | 1,088 | 1,088 | |
R Houghton | 663 | 663 | 663 | 663 | |
D Rich-Jones | 35 | 35 | 35 | 35 | |
T Runge | - | - | 176 | 176 | |
1,786 | 1,786 | 1,962 | 1,962 | ||
The following table shows amounts 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.
2010 | 2009 | ||||
Balance outstanding | Carrying amount | Balance outstanding | Carrying amount | ||
£'000 | £'000 | £'000 | £'000 | ||
A Browne | - | - | 663 | 663 | |
M Bruno | 318 | 318 | 424 | 424 | |
In addition, a non-interest bearing loan was granted to M. Sohler (executive director of Continental Europe) for the purposes of purchasing shares in Xchanging plc. The loan had an outstanding balance of £1,285,000 at 31 December 2010. This loan is repayable within 45 days after the earliest of either the 3rd anniversary after the grant date, or the date of contractually leaving employment with Xchanging.
For further information please contact
Xchanging plc | Tel: +44 (0)20 7780 6999 |
Ken Lever, Acting CEO & CFO | |
Alexandra Hockenhull, Corporate Communications
| |
Cardew Group | Tel: +44 (0)20 7930 0777 |
Rupert Pittman | |
David Roach |
8 April 2011
About Xchanging
Xchanging is a global business processor, with 8,500 people serving customers in 43 countries. We provide business processing services which are applicable across industries, such as procurement, human resources and technology, as well as industry-specific offerings for insurers and financial services companies.
We have a ten-year track record of innovation and reliable delivery, and anticipating and responding to our customers' needs. Our service quality is reflected in the industry awards and world-class certifications we receive.
www.xchanging.com
Related Shares:
XCH.L