11th Apr 2012 16:55
Xchanging plc (the 'Company') Annual Report and Accounts and Notice of Annual General Meeting
The Company has today published its Annual Report and Accounts 2011, Notice of Annual General Meeting 2012 and Form of Proxy.
Annual Report and Accounts 2011
The Annual Report and Accounts 2011 has been submitted to the National Storage Mechanism ("NSM") and will be available for viewing shortly: www.hemscott.com/nsm.do. It is also available on the Company's website: www.xchanging.com at "Annual Report 2011".
Notice of Annual General Meeting 2012
The Company has issued to shareholders its Notice of Annual General Meeting 2012 and Form of Proxy including a map of the venue. The Annual General Meeting will be held on 16 May 2012 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 2012 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 2012 and a map of the venue are available on the Company's website: www.xchanging.com at "Annual Report 2011".
Interim Management Statement
Xchanging will be releasing its next Interim Management Statement on 16 May 2012 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 153 of the Annual Report and Accounts, and page references also refer to the relevant pages of the Annual Report and Accounts 2011. A condensed set of financial statements was appended to the Company's 2011 full year results announcement issued on 1 March 2012, 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 2011, which is available on our website www.xchanging.com at "Annual Report 2011".
Principal risks and uncertainties
(Page 24, Annual Report and Accounts 2011)
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 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.
During 2011 we undertook the implementation of the Four Part Action Plan which was outlined in the 2010 Annual Report. The execution of the plan has led to a year of significant change to the structure and positioning of the organisation. This period of significant change has heightened key risks and uncertainties, and this is reflected in the risk table presented. Continued execution of the plan/activities is fundamental for our long-term profitability and growth, and as such continues to be the key risk facing the business.
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 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. We define the economic value of our business as the net present value of the future sustainable after tax operating cash flows discounted at the weighted average cost of capital. Economic value is also intrinsic value.
Strategic Risks | ||
Key risk | Commentary and mitigating plan | Further information |
Successful and timely execution of the Four Part Action Plan is fundamental to achieving our long-term profitability and cash generation goals. |
Progress against the Four Part Action Plan is fully explained in the Chief Executive Officer's Report. Execution risk is addressed through strong central oversight and focus on key initiatives including: ·; Competing more widely in key markets by engaging more actively with third party advisers and pursuing smaller opportunities more aggressively. ·; Greater focus upon appropriate investment and improved management of working capital. ·; Building our ability to compete effectively in our markets to win new business. ·; Clearly defining the customer relationships we want to defend and those which we believe we can grow.
| Chief Executive Officer's Report - see page 18
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Our reputation and ultimately our profitability are reliant on successful implementation of large-scale partnerships and business processing contracts
| Following significant wins with L'Oréal and BAE Systems North America there are reputational and financial risks around implementation. These are mitigated through: ·; Detailed implementation plans with strong management control. ·; Standardised procedures in use for the implementation of new contracts. ·; Using experienced employees with strong project, change and people management skills in order to ensure successful implementation | Business Sector updates - pages 20-21 and 32-35
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Failure to retain and grow existing businesses. | Our existing business is coming under increasing pressure as the impact of the current economic climate and multiple contract renewals impact our competitive position. This is being managed by: ·; Investment by senior management in protecting our existing core businesses. ·; 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 technological solutions. ·; Active engagement with key customers to ensure mutual agreement positions are achieved. ·; Proactively engaging with third party advisers. | Business sector updates - pages 20-21 and 32-3 |
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Failure to win new business. | 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 which help us to attract customers. ·; Ensuring utilisation of our competitive cost offshore services and technological capabilities. ·; Proactively engaging with third party advisers. | Business sector updates - pages 20-21 and 32-35 |
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Identification and management of non-profitable businesses. | All businesses are reviewed including a process of intrinsic economic valuation analysis in order to ensure non profitable businesses are identified and actions taken to address. |
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We must be able to anticipate and manage changes in the economic environment, including an inflating cost base in India. | Following the economic recession there are risks in the economy which are likely to remain for the foreseeable future, affecting our ability to secure new revenue opportunities and manage margins. ·; Offshoring enables 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. ·; We operate in markets outside of the EU and US which are less susceptible to the economic recession. ·; Quarterly 18-month rolling forecasts help us respond to and recognise the impact of the changing financial conditions upon our business. | Chief Executive Officer's Report - see page 18 |
Commercial Risks
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Key risk | Commentary and mitigating plan | Further information |
We are exposed to material new and existing contracts in key markets which may have a significant impact on the Group's performance. Specifically: 1) The development of, and increased competition within, the London Insurance Market. 2) Increased pricing pressures in the Financial Services sector. |
Our commercial risks continue to be well managed through legal review, delegated authorities and contract monitoring processes. With regards to the specific risks: ·; Significant engagement with the Lloyd's market as it is opens up to competition, ensuring that 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. ·; Extensive discussions with customers are ongoing to ensure that returns from the key contracts meet with the Group's strategic objectives. ·; Further ways to utilise technology and offshoring capabilities are being explored in order to further reduce our cost base. | |
In certain cases, partners have rights to 'put' their shares to us, creating a cash requirement, or to 'call' our shares for little consideration. | Detailed registers enable close monitoring of all key contractual obligations with partners. Structured service management identifies issues early and triggers corrective actions. | |
Operational Risks
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Key risk | Commentary and mitigating plan | Further information |
Our customers and partners demand efficient processing and high levels of service to help them achieve their objectives and protect their reputation. Failure to meet their expectation would have a significant impact upon our reputation and profitability. |
Service levels continue to be consistently on target, 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 operations focus upon improving efficiency through standardisation, near shoring and offshoring. ·; Our quality function focuses on improving processes, controls and performance.
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How we deliver - page 6 |
Continuing to retain our key personnel and recruit new talented individuals is key to our success. | During 2011 there were a number of senior management changes, including the Chief Executive Officer and Chief Financial Officer.
| Our people - page 43 |
This includes ensuring we have robust succession plans in place at Board level. | ·; New Chief Executive Officer, Chief Financial Officer and Executive Director for Technology appointed, and succession plans updated. ·; Retention plans are in place for key employees, and demonstrated during 2011. ·; We have an established structure for employee performance and development monitoring. ·; A clear recruitment strategy and graduate programme attract high-potential employees. ·; Significant investment in leadership training programmes underpins our succession plans, and develops our employees.
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Our service delivery and reputation are highly reliant on business continuity and information security. | 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.
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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. | |
Financial risks
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Key risk | Commentary and mitigating plan
| Further information |
The Group's financial results may be subject to volatility arising from movements in interest rates, foreign exchange rates, taxation rates, pension asset and liability valuations and liquidity. | Our budgeting, forecasting and working capital controls have been strengthened through implementing a quarterly 18-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 pension UK operations are controlled centrally. ·; The Treasury Risk Committee ('TRC') meets on a regular basis and monitors our key financial risk measurements including bank covenant projections. ·; 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. | Operating and Financial Review - page 28 |
Directors' statement pursuant to the Disclosure and Transparency Rules
(page 52, Annual Report and Accounts 2011)
Each of the Directors, whose names and functions are listed in the Board of Directors, on pages 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 include 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 governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Name | Function |
Geoff Unwin | Chairman |
Ken Lever | Chief Executive Officer |
David Bauernfeind | Chief Financial Officer |
Dennis Millard | Senior Non-executive Director |
Pat O'Driscoll | Non-executive Director |
Michel Paulin | Non-executive Director |
Bill Thomas | Non-executive Director |
Related party transactions
(page 142, Annual Report and Accounts 2011)
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 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 2011. 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 2011.
·; Deutsche Bank AG held a 44% interest in Xchanging etb GmbH for the full year ended 31 December 2011. 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% interest in FdB for the full year ended 31 December 2011.
·; SIA-SSB S.p.A. held a 49% interest in Kedrios S.p.A. for the full year ended 31 December 2011. Some of the directors of Kedrios S.p.A. are employees of SIA-SSB S.p.A. The emoluments of these directors were borne by SIA-SSB S.p.A.
In addition:
·; Aon held a 50% interest in XBS up until 28 September 2011 when they exercised their put option (refer to note 22 for further details). Some of the directors of XBS during the period ended 28 September 2011 were employees of Aon. The emoluments of these directors were borne by Aon.
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) | |||
Services provided by/to the Group | 2011 £m | 2010 £m | 2011 £m | 2010 £m |
Securities processing services | 104.9 | 107.1 | 10.1 | 26.9 |
Processing, expert and data services | 26.3 | 39.8 | 0.9 | 2.1 |
Property charges | 0.3 | 0.8 | (0.1) | (0.3) |
Consultancy, services | 0.3 | 4.7 | - | - |
IT costs, premises, divisional corporate charges and other services in support of operating activities | (22.6) | (24.7) | (7.4) | (13.4) |
Operating systems, development, premises and other services in support of operating activities | 1.3 | 0.1 | - | - |
Desktop, hosting, telecommunications, accommodation and processing services | (2.2) | (4.2) | (0.7) | (1.5) |
Consortium relief | - | - | (0.4) | - |
No provisions (2010: £nil) have been recognised against receivables from related parties.
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 year ended 31 December 2011, the key senior managers within the Group are deemed to be the Executive Board members.
For the year ended 31 December 2010, the key senior managers within the Group were the members of the Xchanging Management Board. The Xchanging Management Board was replaced by the Executive Board.
Key management compensation (including Directors) | 2011 £m | 2010 £m |
Short - term employee benefits | 4.0 | 6.3 |
Post - employment benefits | 0.3 | 0.3 |
Share - based payments | 1.2 | 0.8 |
Termination benefits | 1.4 | 0.8 |
Total | 6.9 | 8.2 |
Further information regarding Company Directors' remuneration is disclosed in the Remuneration Report on pages 60 to 69.
The total gain made by Directors during the year from the exercise of share options was £nil (2010: £1.8 million). 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.
2011 Balance Outstanding £m | 2010 Balance Outstanding £m | |
S Beard | 1.0 | 1.1 |
R Houghton | 0.7 | 0.7 |
M Bruno | - | 0.3 |
Total | 1.7 | 2.1 |
Steven Beard is required to repay his loan on or before 31 December 2012. A mortgage has been taken over 800,000 shares in favour of the Employee Benefit Trust.
Richard Houghton is required to repay his loan on or before 31 March 2012. A mortgage has been taken over 500,000 shares in favour of the Employee Benefit Trust.
Melissa Bruno has signed an amended loan agreement allowing her to repay the remaining amount of £0.1 million, monthly on a means-tested basis commencing on 1 January 2012, such amount being subject to interest at 1.5%, provided that repayment in full is complete on or before 31 December 2015. She has also been offered consultancy work at market rates with Xchanging to be paid by off-set against the loan.
A non-interest bearing loan was granted to Matthias Sohler for the purposes of purchasing shares in the Company. Matthias Sohler left the Group in February 2011. The loan had an outstanding balance of £1.3 million at 31 December 2011. Under the terms of the loan agreement, the loan is repayable within 45 days of 1 January 2012, being 14 February 2012.
Enquiries
Xchanging plc Tel: +44 (0) 207 780 6999
Ken Lever, Chief Executive
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
Xchanging is a business process and technology service provider and integrator specialising in Financial Services, Insurance Services, Technology and Procurement and Other BPO, with pervasive processing skills and capabilities applicable to other vertical industry and market sectors. www.xchanging.com
Related Shares:
XCH.L