1st Mar 2010 07:00
XCHANGING PLC
RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2009
|
12 months ended 31 December
|
2009 |
2008 |
Increase |
|
Revenue
|
£750.4m |
£557.8m |
35% |
|
Underlying operating profit (EBIT)(1) |
£63.9m |
£47.3m |
35% |
|
EBIT margin
|
8.5% |
8.5% |
|
|
Xchanging's share of underlying operating profit (XEBIT) (1) |
£52.4m |
£38.5m |
36% |
|
XEBIT margin
|
7.0% |
6.9% |
+10 bps |
|
Xchanging's share of underlying profit for the year (2)
|
£36.3m |
£31.2m |
16% |
|
Underlying EPS - basic(3)
|
15.40p |
14.40p |
7% |
|
Interim dividend (per share)(4) |
2.75p |
2.5p |
10% |
Key financial highlights:
·; Revenue growth of 35% driven by underlying performance (5% organic growth) and Cambridge acquisition (£146.0 million)
·; XEBIT growth of 36%, including organic XEBIT growth of 10%
·; Organic XEBIT margin improvement of 37 basis points due to revenue growth, productivity improvements and leveraging central costs (10 basis points improvement including Cambridge)
·; Delivered 7% underlying EPS growth
·; Increased dividend per share by 10% to 2.75p
·; Strong balance sheet with £22.1 million net cash at the end of the period
Key operational highlights:
·; Successfully completed the integration of Cambridge and consolidated our US BPO operations
·; Acquired FondsServiceBank investment account administration services business and won SEB Bank and SEB Asset Management
·; Added our largest global procurement contract to date with Alexander Mann Solutions (AMS)
·; Accelerated our lean processing strategy in the UK and Germany
David Andrews, CEO of Xchanging, commented:
"These are a strong set of results which demonstrate Xchanging's ability to build its business. Against a backdrop of one of the most severe global recessions, we have grown both revenues and profits. Overall, we grew our revenue by 35% including the Cambridge acquisition and, importantly, we are able to report 5% underlying organic growth. Significant achievements in 2009 included successfully integrating Cambridge, growing our international footprint, and extending the range of our services. Our focus for 2010 is to grow existing platforms, add new ones and continue our lean processing strategy. We have a strong position in a growing market and are confident that we are well positioned for the future."
Notes:
(1) Underlying operating profit excludes exceptional items (FY 2009: £29.2 million, FY 2008: £nil) and amortisation of intangible assets previously unrecognised by acquired entities (FY 2009: £9.9 million, FY 2008: £0.9 million). In prior years, IFRS 2 share-based payment charges were also excluded from underlying operating profit. In the current year, IFRS 2 share-based payment charges (FY 2009: £1.9 million) are included in underlying operating profit, to align with current market practices. The prior year comparatives have been restated to enable a like-for-like comparison (FY 2008: £2.3 million). Due to the minority interests in the Group, Xchanging reports underlying operating profits attributable to the Group (XEBIT).
(2) Underlying profit for the year excludes exceptional items, amortisation of intangible assets previously unrecognised by acquired entities, imputed interest on put options and employee loans and the related tax thereon.
(3) Underlying earnings per share (EPS) - Xchanging share of underlying profit for the year divided by the weighted average basic number of Xchanging plc shares in issue for the year ended 31 December.
(4) 2009 interim dividend will be paid on 1 April 2010, in lieu of a final dividend.
1 March 2010
Enquiries:
Xchanging plc |
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David Andrews, Chief Executive Officer |
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Richard Houghton, Chief Financial Officer |
Tel: 020 7780 6999 |
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Cardew Group |
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Rupert Pittman |
Tel: 020 7930 0777 |
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David Roach |
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A presentation for investors and analysts will be held at Xchanging's offices at 34 Leadenhall Street, London, EC3A 1AX at 09:00 on 1 March 2010.
About Xchanging:
Xchanging is one of the largest and fastest growing business processors. With a wide range of multinational customers in 42 countries and employing over 8,000 people, we are a truly global company. We deliver mission-critical, high volume processing to our customers. Our aim is simply to provide business processing services better, cheaper and faster.
Xchanging provides procurement, accounting, human resources and technology services across industries. We combine this functional processing expertise with deep industry domain knowledge to provide industry-specific processing services across a broad range of industries. These industries include banking, insurance, manufacturing, retail and real estate among others.
Listed on the London Stock Exchange in 2007, the company is in the FTSE250, the index of mid-capitalised companies traded on the London Stock Exchange. Xchanging is also a member of the FTSE4Good index which measures the performance of companies that meet globally recognised corporate responsibility standards.
www.xchanging.com
Full Year Results for the 12 months to 31 December 2009
Chief Executive Officer's review
2009 marked our tenth year as a company. In our first decade Xchanging has grown rapidly from winning BAE Systems as our first customer, to delivering services to more than 500 customers around the world. Over the 10 years, we have built a track record of fast growth. More recently, since our IPO in 2007, we have increased revenues by 91% (compound annual growth rate (CAGR) of 24%)^. We have grown XEBIT by 141% during the same period with XEBIT margins increasing from 5.5% to 7.0%. From a shareholder perspective, we have delivered a 40% increase in underlying earnings per share (CAGR of 12%). We are confident that we are well positioned for continued strong growth in the years ahead.
Our confidence comes from the resilience of our business in 2009; our successful integration of the Cambridge acquisition; our international footprint; our relentless focus on customer requirements; and our clear strategy for growth. In short, we are determined to become the global business processor of choice.
Note:
^ - CAGR based on 2006 full-year numbers.
Resilient in the face of difficult markets
Against the backdrop of one of the most severe global recessions, Xchanging has grown its revenues by 35% and underlying operating profits by 36%. In 2009, Xchanging delivered 5% organic revenue growth (8.4% including gains from currency movements). Significantly, we have delivered this growth despite the reduction of volumes in our German business and the weakness in the US market.
In 2009, we took a number of steps to review our cost base, accelerating our lean processing strategy and enhancing the resilience of our business going forward. In the first half of the year, we rationalised our US business and combined the UK operations under a single management team. We also initiated steps to reduce our onshore capacity in both the UK and Germany and will be further increasing offshoring activities during 2010. We will make best use of our increased scale in India to enhance our competitive cost position. This increased offshoring and associated capacity rationalisation has resulted in an exceptional one-off cost in 2009 of £17.4 million. This will lead to a reduction in annual costs of c. £14 million in 2010 with an anticipated full year run-rate benefit of c. £17 million per annum from 2011 onwards.
These cost savings will underpin our margin improvements in 2010 and beyond. We are also reinvesting an element of these savings into our sales operations within each region. This will enhance our ability to win and implement large contracts and to take advantage of the expected uplift in the market.
Successful integration of our major acquisition
As planned, we successfully completed the Cambridge integration by the end of the year and in line with the integration budget disclosed in our half year results. We have increased underlying basic earnings per share (EPS) by 7% after accounting for the additional shares issued and debt drawn down to fund the Cambridge acquisition. With the addition of Cambridge, we have built a solid platform for profitable growth and achieved critical mass in India, our principal offshore location. Cambridge accounted for 26% of revenue growth in the Group in 2009 and has expanded our international reach. Most importantly, it has given us a broader base of customers, particularly in the USA and Asia Pacific.
In 2009, we reorganised the US operations into 16 primary processing centres and secondary sites, down from 45 locations. We also established our new Americas region headquarters and flagship processing centre in Chicago. Numerous customers from across the USA joined us at our inauguration event in October. We are delighted with the positive response we received from them and the wider US market. With around 41% of our top customers contracting with our US operations, we now have an established and growing presence in the largest BPO market in the world.
The addition of Cambridge has also given us considerable scale in India. We now have processing centres in Gurgaon, Bangalore, Shimoga and Chennai. This puts Xchanging in a highly competitive cost position. We now have a rich pool of highly-skilled IT and multilingual processing expertise in India to support our growth. One of our key aims for 2010 will be to leverage the arbitrage opportunities available through attractive incentives in the tier 3 and 4 locations in India.
International coverage and capability
To exploit our international coverage, in 2009 we moved from a sector-based to a regional management structure. We appointed experienced leaders in all of our regions and strengthened the local sales forces and operational management teams. Xchanging now has a powerful combination of global processing capabilities and local, national and regional presence.
Our experience, supported by industry commentators, is that there is a growing desire among customers to reduce the total number of BPO providers they use across locations. We are able to respond to this trend with our global business processing capability. With customers in 42 countries, Xchanging has built an enviable track record for delivering services efficiently across multiple geographies, with the right mix of onshore and offshore processing. This track record positions us well to add new customers seeking global services for multinational operations as well as to expand internationally the services we provide to our existing customers.
Customer-focused approach
We have built a superb portfolio of blue-chip customers, which is now diversified, both geographically and across the industries we serve. During 2009, we have devoted, through tailored programmes, substantial efforts to extending the scope of services we provide to our top customers. Industry commentators re-inforce the benefits of this approach by noting that the companies most likely to lead the outsourcing trend are those that have outsourced in the past. We are excited that this focus on existing customers will generate new opportunities for 2010 and beyond.
We continue to target the top 500 multinational companies in the world through a globally co-ordinated programme. These companies represent an enormous medium-term opportunity for boosting growth. Our distinctive capabilities for meeting their needs internationally put us in a strong competitive position.
Clear strategy
We have the same vision as when we launched Xchanging 10 years ago - to become the global business processor of choice. Our strong growth to date, combined with our multinational customer base indicate that this is indeed what the market wants. We will continue to keep a close eye on emerging public and industry opportunities as these sectors seek alternative methods to drive efficiency in existing cost structures.
To realise our vision we continue to follow our simple three-pronged strategy: growing existing platforms, adding new platforms, and becoming the lean processor. This strategy has been the basis for the creation of our leading platforms and international presence. In 2010, we will continue to build on our existing platforms and exploit our multinational customer base. The strong sales and service organisations in each of our regions will be the driving force for this going forward. Through leveraging our economies of scale and standardising production across our processing centres globally, we will maximise the benefits to the customer with lower costs and better service.
We believe that our strategy is the right one for delivering the same strong trajectory of growth in the next decade as we have achieved in our first 10 years. We are particularly well placed to capitalise on the rapid growth that is forecast for the global BPO market, as the various economies recover.
Outlook
The slowdown in economic activity in 2009 had an adverse effect on certain parts of our business. Customers deferred discretionary spend,particularly in IT services, and transaction volumes in the German banking sector were also subdued. Encouragingly, the market is expected to recover over the next few years. Xchanging expects to benefit from higher levels of transactions and discretionary spend as the global economy recovers. We also expect that companies will once again look to leverage outsourcing to drive down costs and reduce investment in their back office operations. We believe that Xchanging is particularly well placed to take advantage of this next growth phase in the global BPO industry.
Our revenue visibility is consistent with prior years and we are seeing considerable interest from existing and new customers who are looking to reduce costs and minimise investment in non-core operations. We have a well-stocked pipeline with 33 opportunities each having more than £20 million of annual value. This compares with 30 opportunities in the pipeline at the half year results in 2009. However, as we noted at the pre-close statement in December, the delays we are seeing in decision making among customers mean that we envisage the bulk of these opportunities being achievable in the medium to longer term with little impact likely until the second half of 2010.
At the end of the year, we indicated that we have a strong pipeline of deals under £20 million of annual value. These are the type of deals, such as those signed with Aon Benfield and WorkCover Australia, that underpinned our growth in 2009 and will continue to do so going forward.
We have a strong position in a growing market and are confident that we are well positioned for continued growth in the years ahead.
Regional review
During 2009, we continued to win new customers while expanding the services we offer our existing customers around the world. We firmly established our presence in the Americas and Asia Pacific, while continuing our growth in the UK and Continental Europe.
UK
The opportunities within the European insurance markets remain substantial. We expect commercial insurance companies to continue to invest in infrastructure and to look for ways of reducing back-office costs. As such, we see strong latent demand for insurance processing services globally.
During the year, we implemented an upgraded Insurers' Market Repository (IMR). The IMR made a significant contribution to revenue growth in 2009. This has been a very successful joint project with the London Market. As of December, the IMR had over nine million documents stored and was receiving over 15,000 new documents a day from over 6,000 registered users.
Also in the UK, we delivered an increase in electronic trading volumes on the London Metal Exchange (LME) and increased the scope of services we offer to the Market with LMEselect (Clearing Platform) and LMEsmart (Matching Platform). This has enabled the LME's growth into new markets.
The market for HR services in Europe was adversely affected during 2009 as companies reduced recruitment, training and relocation in order to reduce employment costs. Moving into 2010, we expect to see similar trends. Demand will depend on the state of the economy which is unlikely to pick up in the UK until the second half at the earliest. During 2010, we will therefore look to expand our HR services portfolio into the USA and Australia to meet the growing demand for broader employment services there, such as back-to-work and medical compensation schemes.
Other highlights in the UK include the signing of a significant service contract with a large consulting and IT services group to provide UK immigration processing and compliance and the implementation of our contract with Cooper Gay to outsource and offshore back-office processing functions via our Xchanging Broking Services processing platform. During 2009 Xchanging, continued to provide a range of services to Tokio Marine Group, supporting their operations through the delivery of complex BPO processes. Success in this platform has led to an extension of the services to the wider Tokio Marine Group.
Continental Europe
Consistent with the trends reported by industry commentators, German banks experienced lower retail securities volumes in 2009 as consumers stayed out of the market. Banks also cut back on discretionary spend in order to protect their overall financial and cash positions. However, opportunities remain in the funds administration and securities businesses as the market continues to consolidate. We are also witnessing an increasing interest in BPO from the insurance and manufacturing sectors in Germany.
In May 2009, we agreed to acquire FondsServiceBank (FSB). FSB was the investment account administration services business unit of DAB bank AG and had revenues of over €40 million in 2008.
We expanded this platform further in January 2010 when SEB Bank and SEB Asset Management chose Xchanging to administer their investment accounts. By the end of 2010, Xchanging will manage approximately 1.5 million investment accounts, and will have around €30 billion of assets under administration.
Throughout the year, we also provided the taxation processing to meet the German 'Abgeltungssteuer' regulatory requirement for banks to deduct tax at source for German equities. This has led to an increase in the scope of services delivered to our customers.
Americas
The weak US economy in 2009 resulted in a reduction in both IT outsourcing spend and discretionary services. However, the US continues to be the largest BPO market in the world. IDC estimates the current size of the US BPO market to be c.US$70 billion and projected to grow to US$89 billion by 2013.
The BPO market for industry specific processing looks attractive in 2010 with increased interest in insurance and financial services. Multi-line claims processing remains a largely untapped market in the USA. This market looks attractive for global players with deep industry expertise, such as Xchanging.
The Life and Annuity industry has experienced significant change in 2009 due to the financial market crisis. This has required the marketplace to refocus on product development in order to unlock lower transaction costs against a back drop of increasing regulation and high technology-based fixed costs.
Given the restructuring of the US banking industry and increase in Government oversight, we are witnessing a return to banks focusing on core products and services. These strategic changes are creating market opportunities for both BPO and technology services which we will seek to take advantage of.
During the year, we completed the successful integration of the Cambridge business into Xchanging. We repositioned the services to our customers to deliver better claims outcomes and higher quality with more consistent service. We consolidated the US operations from 45 disperse sites into 16 primary processing centres and secondary sites.
Our insurance software operations generated a number of significant new sales including a new contract with QBE European Operations (QBE), a longstanding customer. Xchanging will deliver a unified technology solution for QBE's European commercial property and casualty business. This makes QBE the first customer to benefit from Xchanging's new .NET Insurance Application Platform (XIAP).
Asia Pacific
The fast-growing Australian BPO market presents significant opportunities in banking, funds administration (superannuation) and procurement, where Xchanging is a strong player in Europe. The claims processing sector in Australia is fragmented and dominated by insurance companies. Therefore, there is significant opportunity to grow in this market.
In India, there is an emerging domestic market opportunity in the financial services space. In addition, Singapore has started to recover as the financial services industry is showing signs of rebounding.
Overall, as a result of their limited exposure to the US mortgage market, local and multinational corporations in Asia Pacific performed well in 2009. Future opportunities with multinational, regional and local banks, insurance and fund management groups are expected to be centred on lessons learned from the financial crisis, such as focussing on core competencies and driving transparency in business.
During the year, we renewed our contract with the WorkCover Authority of New South Wales. This five-year contract replaces an earlier Cambridge contract which was entered into in 2006. The estimated total contract value is approximately AU$90 million to 100 million. We were also appointed to manage the workers' compensation claims for the Melbourne Health Service, which includes the Royal Melbourne Hospital, the State of Victoria's first hospital. The Melbourne Health Service is the second largest metropolitan health service in Victoria with more than 8,000 employees. As a result of this new contract win, Xchanging will now handle over 50% of the major metropolitan hospitals in the State of Victoria.
Other highlights for the region during the last year have also included the achievement of several IT outsourcing renewals such as contracts with DHL and the Government of Singapore. Xchanging is an approved vendor to the Government of Singapore and our centre in Singapore has achieved CMMi Level 3 (v1.2).
Global Procurement
Procurement is projected to be a fast-growing BPO service over the next few years and we see opportunities for growth in this area through both existing and new customers.
An increasing number of companies are looking to reinvent their procurement processes in order to get better control over bought-in spend and achieve sustainable cost savings over time. The effective delivery of these services needs global expertise and a balanced onshore/offshore model.
During the year, we signed our largest ever procurement outsourcing contract with AMS, a leading global recruitment process outsourcing provider. This was also one of the largest contracts of its kind in the industry. The contract will see Xchanging manage £825 million of indirect procurement spend over five years on behalf of AMS.
We agreed a four-year contract extension with National Australia Group Europe (NAGE). Xchanging will continue to offer a full suite of sourcing and procure-to-pay services to NAGE, which it has done since July 2006 when NAGE first became a customer.
We also signed a three-year procurement outsourcing contract with SELEX Galileo in December 2009. SELEX Galileo is part of the Finmeccanica Group, one of Italy's leading industrial groups. The contract commenced on 1 January 2010 and Xchanging now manages indirect procurement spend of c. £17 million across a number of spend categories for SELEX Galileo in the UK.
Board changes
In January 2009, Dennis Millard was appointed Senior Independent Director and in July, Pat O'Driscoll became Chairman of the Remuneration Committee in succession to Stephen Brenninkmeijer.
In September, General Atlantic reduced their holding in Xchanging to just under 10%. As a consequence, Tom Tinsley announced his retirement from the Board. Tom has made a significant contribution to the Board since joining it in 2000. General Atlantic has been a very supportive shareholder in Xchanging since our formation and we would like to thank them for their support.
On 1 January 2010, Michel Paulin was appointed to the Board as a Non-Executive Director. He brings important Board commercial experience from Continental Europe.
Financial Review
Group key performance indicators (5)
|
12 months ended 31 Dec |
2009 |
2008 |
Increase |
|
Revenue
|
£750.4m |
£557.8m |
34.5% |
|
Underlying operating profit (EBIT)(1) |
£63.9m |
£47.3m |
35.1% |
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EBIT margin
|
8.5% |
8.5% |
|
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Xchanging's share of underlying operating profit (XEBIT)(1)
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£52.4m |
£38.5m |
36.1% |
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XEBIT margin
|
7.0% |
6.9% |
+10 bps |
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Xchanging's share of underlying profit for the year (2)
|
£36.3m |
£31.2m |
16.3% |
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Underlying EPS - basic (3)
|
15.40p |
14.40p |
6.9% |
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Cash generated from operations (pre cash exceptional items) |
£76.3m |
£69.7m |
9.5% |
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Cash conversion (pre cash exceptional items)(6) |
119.4% |
147.3% |
|
|
Free cash flow (pre cash exceptional items) (7) |
£28.4m |
£33.0m |
|
Notes:
(5) The Group's KPIs are calculated after 'adding back' a number of non-cash adjustments and exceptional charges in order to present the underlying performance of the business. In prior periods, these add backs have included the IFRS 2 share-based payment charges in relation to share and share option awards (2009: £1.9 million; 2008: £2.3 million). As of the 2009 half year results, share-based payments are no longer included in the add backs. Historical comparatives have been re-calculated for presentation in these financial statements.
(6) Cash conversion (pre cash exceptional items) is calculated as cash generated from operations (pre cash exceptional items) divided by the Group's underlying operating profit.
(7) Free cash flow (pre cash exceptional items) is calculated as cash generated from operations (pre cash exceptional items) less capital expenditure, interest and taxation.
Group performance
Revenue growth
Revenue for the 12 months ended 31 December 2009 was £750.4 million, an increase of 34.5% over the same period last year (2008: £557.8 million), of which 26.2% (£146.0 million) relates to revenues acquired with the consolidation of Cambridge in 2009. Organic revenue growth was 4.8% on a like-for-like currency basis. Currency movements added a further 3.6% to the underlying growth rate. Organic growth was driven primarily by the UK region as a result of the Insurers' Market Repository (IMR) and growth of the broking platform with the full-year impact of the Cooper Gay contract and the addition of the contract with Aon Benfield. The Group's hosting business, also in the UK region, benefited from growth in demand from its insurance customers and the LME. In the Continental Europe region, growth from the new withholding tax service was offset by lower volumes in securities processing and reduced asset values in our funds administration business.
Revenue visibility
The Group uses a revenue visibility measure which represents revenue which can reasonably be expected to arise in the year from current customers where we have in place a contractual relationship. We have undertaken a thorough review of visibility in the light of the economic climate and incorporating the Cambridge business.
Visible revenue going into 2009 was £527.2 million for Xchanging (excluding Cambridge). Revenue visibility for Xchanging (including Cambridge) going into 2010 is £684.0 million.
Profit growth
Underlying operating profit (EBIT) grew 35.1% to £63.9 million (2008: £47.3 million), representing an operating margin of 8.5% (2008: 8.5%). Statutory operating profit declined 46.7% to £24.8 million (2008: £46.5 million) after recognising net exceptional items of £29.2 million (2008: £nil) in relation to the integration of Cambridge, restructuring costs and a liability provision release. There was also a £9.9 million charge due to the amortisation of acquired intangibles, of which £9.1 million related to the Cambridge acquisition.
XEBIT grew 36.1% to £52.4 million (2008: £38.5 million). This represents an XEBIT margin of 7.0% (2008: 6.9%). XEBIT (excluding Cambridge) grew 15.6% to £44.5 million, including currency gains of £2.1 million. The XEBIT margin (excluding Cambridge) was 7.4%.
Cambridge made a contribution to the Group £7.9 million of XEBIT with an XEBIT margin of 5.4%.
The table below details the adjustments to operating profit to determine XEBIT:
|
XEBIT |
2009 |
2008 |
|
|
|
£m |
£m |
|
|
XEBIT |
52.4 |
38.5 |
|
|
Underlying operating profit attributable to minority interests |
11.5 |
8.9 |
|
|
Underlying operating profit |
63.9 |
47.3 |
|
|
Less: |
|
|
|
|
Exceptional items |
(29.2) |
- |
|
|
Amortisation of intangible assets that were previously unrecognised by an entity acquired by the Group |
(9.9) |
(0.9) |
|
|
Statutory operating profit |
24.8 |
46.5 |
|
|
|
|
|
|
Xchanging's share of underlying profit for the year grew 16.3% to £36.3 million (2008: £31.2 million). This represents a margin of 4.8% (2008: 5.6%). Growth in profit for the year was substantially lower than growth in operating profit due to the adverse movement in finance expense compared with the previous year.
Margins
EBIT margins improved in the UK region due to revenue growth (the signing of the Cooper Gay and Aon Benfield contracts in August 2008 and March 2009 respectively), the benefits of the UK consolidation and improvements in productivity. Overall margins were diluted by the lower EBIT margins of the acquired Cambridge business together with margin falls in Continental Europe and Global Procurement.
Exceptional items
The Group posted exceptional charges of £29.2 million during the year (2008: £nil), associated with the integration of Cambridge and restructuring of the existing Xchanging business (see note 3 in the Notes to this statement). A significant proportion of the £16.7 million integration of Cambridge charge was associated with the integration of the Cambridge US BPO business, which was primarily the cost of reducing the number of sites from 45 to 16 primary processing centres and secondary sites in the first half of the year. The primary focus of restructuring in the existing Xchanging business was in the UK and Germany, which generated an exceptional cost of £17.4 million in 2009. In the UK, we are looking to deliver efficiencies and synergies by combining operations and in Germany we are streamlining capacity to ensure that it is in line with trading volumes and demand for Business Support. This will lead to a reduction in annual costs of c. £14 million in 2010 with an anticipated full year run-rate benefit of c. £17 million per annum from 2011 onwards.
There was an exceptional gain of £5.0 million during the year associated with the release of a provision in the FDB business. This provision was held against a potential liability arising from FDB's membership of the EdW banking group in Germany. When FDB was granted a full banking licence in early 2010, this potential liability fell away. A deferred tax asset related to this provision of £1.6 million was also released and is included with taxation in the income statement.
Earnings per share (EPS)
When considering earnings per share, the Group believes it is appropriate to use Xchanging's share of underlying profit for the year as it represents the underlying performance of the business. Further, management believes the focus should be on basic earnings per share so as not to double count the impact of share-based payment charges, which are included in the underlying profit for the year.
|
Basic / diluted earnings per share |
2009 |
2008 |
|
|
£m |
£m |
|
|
|
|
|
Xchanging's share of underlying profit for the year (£m) |
36.3 |
31.2 |
|
Weighted average number of shares in issue (m) |
235.4 |
216.4 |
|
Underlying basic earnings per share (pence) |
15.40 |
14.40 |
|
|
|
|
|
Xchanging's share of underlying profit for the year (£m) |
36.3 |
31.2 |
|
Weighted average diluted number of shares (m) |
238.1 |
224.6 |
|
Underlying diluted earnings per share (pence) |
15.23 |
13.88 |
Underlying basic earnings per share has grown 6.9% to 15.40 pence (2008: 14.40 pence). The improvement in earnings per share has been driven by growth of 16.3% in Xchanging's share of underlying profit for the year. At the underlying basic EPS level, this growth has been diluted by an increase in the average number of shares in issue by 8.8% to 235.4 million shares (2008: 216.4 million shares). The increase in the average number of shares in issue is due to the issue of 15.2 million shares as part consideration for the acquisition of Cambridge in April 2009 and the exercise of options resulting in the issue of 2.4 million shares (0.7 million on weighted average basis). Underlying diluted earnings per share has grown 9.7%.
Finance cost
Net finance cost (pre exceptional items, imputed interest on put options and imputed interest on employee loans) increased to £4.1 million (2008: £4.7 million finance income). The movement from net finance income to a net finance cost was due to the combined impact of holding significantly lower cash balances post the Cambridge acquisition, interest charges associated with the acquired and refinanced debt in Cambridge, and increased pension costs as a result of lower returns on plan assets and higher pension liabilities.
Finance costs include interest charges incurred in 2009 relating to the Group's committed credit facility (this facility was not drawn against in 2008). In addition, finance costs of £2.3 million were incurred by the acquired Cambridge entities in 2009 relating to the servicing of several debt facilities and loans held primarily in the USA and India.
The Group reviews its interest rate exposure against acceptable risk profiles on a periodic basis. At the reporting end date all of the Group's debt facilities were subject to floating rate interest.
Taxation
The Group's effective tax rate on Xchanging's share of underlying operating profit for the year was 26.4% (2008: 27.0%). The effective tax rate for the year benefited from the recognition of tax losses in the central services entity.
The Group's underlying effective tax rate, before exceptional items, was 25.7% (2008: 27.8%).
Balance sheet and liquidity
The balance sheet and liquidity position of the Group remain strong following the consolidation of Cambridge during the year. Cash held by the Group companies at the period end was £60.1 million (2008: £117.8 million) of which £31.5 million (2008: £42.5 million) was held by Enterprise Partnerships. Centrally controlled cash was £28.6 million (2008: £75.3 million).
During the year, the Group syndicated its existing bank credit facility and increased it by c. £20 million to £111.4 million. The £111.4 million comprises a £75 million revolving credit facility which matures in October 2012 and a US$58 million term loan which amortises from December 2009 and matures in 2012. The facility was increased to help fund the acquisition of Cambridge and the related implementation costs and to provide the Group with sufficient headroom to finance future growth.
At the reporting period end date, the Group had utilised US$50 million (£31.4 million) of the term loan facility. It also had £7.4 million of drawn debt facilities in Cambridge, giving a total drawn debt facility of £38.8 million (2008: Xchanging had no drawn debt). In addition, €20 million (£18.0 million) of the revolving credit facility has been used to support a letter of credit.
At the end of 2009, the Group had a net cash position of £22.1 million (2008: net cash of £117.8 million).
Operating Cash Flow
Cash flows from operating activities (pre cash exceptional items) increased by 9.5% to £76.3 million (2008: £69.7 million).
|
|
2009 |
2008 |
|
Cash generated from operations (pre cash exceptional items) |
£76.3m |
£69.7m |
|
Underlying operating profit |
£63.9m |
£47.3m |
|
Cash conversion |
119.4% |
147.3% |
Cash performance is measured using a cash conversion ratio, calculated as cash generated from operations divided by the Group's underlying operating profit. Cash conversion, pre cash exceptional items of £13.4 million, was 119.4% (2008: 147.3%). The Group's cash conversion has been adversely impacted by the US BPO business, where the Group has taken on a number of legacy cash absorbing onerous contracts, primarily related to vacant space.
Capital expenditure, depreciation and amortisation
The Group invested £32.3 million (2008: £39.0 million) on tangible and intangible assets during the period, representing 4.3% (2008: 7.0%) of revenue. The investment has mainly been in the insurance and banking and securities businesses. We have continued to invest in developing products, technology and infrastructure for the electronic handling of policies and claims in the London insurance market. £3.8 million (11.2%) of the total capital expenditure for the period related to the integration of Cambridge including premises fit out, IT infrastructure and implementation. Excluding this, capital expenditure would have been 3.8% of revenue.
The depreciation and amortisation charges of £26.6 million excluding IFRS amortisation of acquired intangible assets (2008: £16.4 million) represented 3.5% of revenue (2008: 2.9%).
The Group deferred £1.1 million (2008: £0.4 million) as pre-contract costs, which are disclosed as trade and other receivables in the consolidated financial statements. Costs directly attributable to winning a contract are deferred when it is virtually certain that the contract will be awarded. These costs are amortised over the life of the contract; the amortisation charge for the period was £1.4 million (2008: £1.4 million).
Free cash flow
Free cash flow, defined as operating cash flow (post cash exceptional items) less capital expenditure, interest and taxation, was £15.0 million (2008: £33.0 million). The cash cost of acquiring 76% of the issued share capital of Cambridge and the 2009 cash payment relating to the FondsServiceBank (FSB) acquisition totalled £62.1 million. Taken together with free cash flow, financing activities and distributions to shareholders, the overall cash movement for the Group was an outflow of £57.7 million.
Regulatory capital
Xchanging operates in a number of regulatory regimes. The key businesses affected by regulatory requirements are Xchanging Transaction Bank (XTB) and Fondsdepot Bank (FDB), which conduct securities processing and retail investment account management processing in Germany. They both maintain full banking licences (FBD maintained only a partial banking licence until the full licence was granted) and are regulated under the German Federal Financial Supervisory Authority (BaFin). Components of the insurance businesses are regulated in the United Kingdom by the Financial Services Authority (FSA).
There was no increase in regulatory capital requirements in the Group during 2009. On 5 January 2010, £6.7 million was injected into the German banking group in advance of the completion of the acquisition of FSB, which is expected in April 2010.
Dividend
The Board has approved the payment of a 2009 interim dividend of 2.75 pence per share payable on 1 April 2010 to all shareholders on the share register at the record date 19 March 2010. This interim dividend will be in place of a final dividend. Based on the 2009 underlying diluted earnings per share of 15.23 pence, this dividend is covered 5.5 times.
Segmental performance
Xchanging has changed its financial reporting structure from a business line to a regional basis (UK, Americas, Continental Europe and Asia Pacific) plus Global Procurement. This is to reflect the way we manage the business globally post the acquisition of Cambridge. Segmental performance, based on the new regional structure, is discussed as follows:
UK
Revenue in the UK region increased by 13.3% to £237.7 million (2008: £209.7 million). Contracts won in XBS, the Group's broking business, in the second half of 2008 (Cooper Gay) and early in 2009 (Aon Benfield) have had a favourable impact on revenue. The Insurers' Market Repository (IMR) has also contributed to this growth.
XEBIT for the period increased by 40.9% to £30.3 million (2008: £21.5 million) resulting from new and incremental business and through the scale benefits achieved from the new regional structure.
The XEBIT margin increased during the period to 12.8% (2008: 10.3%) primarily due to the increased contribution to XEBIT from XBS, productivity improvements and leveraging management overhead across the enlarged business, which resulted from the restructure into regions.
Americas
The Americas region revenue of £145.9 million includes £113.3 million relating to the acquired Cambridge business and £32.6 million (2008: £32.1 million) relating to the Xchanging (excluding Cambridge) insurance software business. The Americas revenue for the period included £4.8 million of revenue from the contract for services with Compagnie Pour Assistance Technique et Investissements S.A. announced on 12 January 2009.
XEBIT of £6.7 million includes profit of £0.9 million from the Cambridge US BPO and IT businesses with the Xchanging (excluding Cambridge) insurance software XEBIT growing by 3.4% to £5.8 million (2008: £5.6 million) due to improved revenue mix and contribution from the sale of the XIAP licences to QBE. This contract with QBE commenced implementation during the second half of the year.
The XEBIT margin for the region was 4.6% (2008: 17.4%) as a result of the acquired Cambridge businesses operating at lower margins, in particular the US BPO business which historically has underperformed. Management have taken actions to improve the margins of the acquired Cambridge businesses, with the restructuring of the US BPO business completed during 2009. The XEBIT margin of the Xchanging (excluding Cambridge) insurance software business grew to 17.8% (2008: 17.4%).
Continental Europe
Revenue in the Continental Europe region grew by 9.9% to £165.1 million (2008: £150.3 million). Organic growth was flat with reported growth driven by the movement in foreign exchange rates between the periods.
Growth from the new German withholding tax service (Abgeltungssteuer) was offset by lower volumes in securities processing and lower asset values in investment accounts. Business Support revenues were also down as our customers reduced short-term expenditure.
XEBIT for the period declined by 13.8% to £12.9 million (2008: £14.9 million). Margin growth from the new Abgeltungssteuer service and productivity improvements was offset by the loss of margin related to the lower securities processing volumes and Business Support revenues. The XEBIT margin therefore decreased for the period to 7.8% (2008: 9.9%).
Asia Pacific
Revenue in the Asia Pacific region of £47.5 million includes £41.4 million of revenue from the Cambridge Australian and Indian BPO businesses and £6.1 million (2008: £5.4 million) of revenue related to the Xchanging (excluding Cambridge) Business Processing Services (BPS) unit which has grown 13.0% due to increased offshoring by the insurance and Continental European businesses.
XEBIT of £8.1 million includes £7.0 million of profit from the acquired Cambridge business and £1.1 million (2008: £0.8 million) from the BPS business.
The XEBIT margin for the region has increased to 17.1% (2008: 14.0%) as a result of the acquired Australian BPO and Indian BPO businesses which operate at higher margins. The underlying operating margin for the period has increased to 21.7% (2008: 14.0%).
Global Procurement
Global Procurement revenues increased by 4.2% to £185.4 million (2008: £177.9 million) due to growth in revenue from BAE Systems, partially offset by declines in some volume-related revenues, particularly in the banking and securities sector. The contract with AMS made a small contribution to revenues during the year.
XEBIT decreased by 12.7% to £12.5 million (2008: £14.3 million). Margins were adversely impacted by a mix change in the business, pricing pressures and significantly reduced Business Support revenues in France.
The XEBIT margin has decreased to 6.7% in the period (2008: 8.0%) reflecting the pressures described above. There are no minority interests within the segment hence XEBIT is the same as underlying operating profit.
Corporate
Corporate costs declined by 2.3% to £18.1 million (2008: £18.6 million). Corporate costs were constrained despite the increased scale and geographic reach of the Group. As a result, Corporate costs as a percentage of revenue reduced from 3.3% to 2.4%.
Financials
Consolidated income statement for the year ended 31 December 2009
|
|
|
2009 |
2008 |
||||
|
|
|
Underlying |
Exceptional items (refer note 3), amortisation of intangible assets previously unrecognised by an acquired entity and imputed interest on put options |
Total |
Underlying |
Exceptional items (refer note 3), amortisation of intangible assets previously unrecognised by an acquired entity and imputed interest on put options and employee loans |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Revenue |
|
750,416 |
- |
750,416 |
557,763 |
- |
557,763 |
|
Cost of sales |
|
(667,470) |
(39,116) |
(706,586) |
(492,340) |
(886) |
(493,226) |
|
Gross profit |
|
82,946 |
(39,116) |
43,830 |
65,423 |
(886) |
64,537 |
|
|
|
|
|
|
|
|
|
|
Administrative expenses |
|
(19,071) |
- |
(19,071) |
(18,078) |
- |
(18,078) |
|
Operating profit |
|
63,875 |
(39,116) |
24,759 |
47,345 |
(886) |
46,459 |
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
(13,061) |
(1,222) |
(14,283) |
(9,156) |
(2,232) |
(11,388) |
|
Finance income |
|
8,982 |
- |
8,982 |
13,857 |
238 |
14,095 |
|
Profit before taxation |
|
59,796 |
(40,338) |
19,458 |
52,046 |
(2,880) |
49,166 |
|
|
|
|
|
|
|
|
|
|
Taxation |
|
(15,391) |
8,874 |
(6,517) |
(14,486) |
865 |
(13,621) |
|
Profit for the year |
|
44,405 |
(31,464) |
12,941 |
37,560 |
(2,015) |
35,545 |
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
- equity holders of the Company |
|
36,259 |
(28,869) |
7,390 |
31,170 |
(2,015) |
29,155 |
|
- minority interests |
|
8,146 |
(2,595) |
5,551 |
6,390 |
- |
6,390 |
|
|
|
44,405 |
(31,464) |
12,941 |
37,560 |
(2,015) |
35,545 |
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to equity holders of the Company (expressed in pence per share)
|
|||||||
|
- basic |
4 |
15.40 |
|
3.14 |
14.40 |
|
13.47 |
|
- diluted |
4 |
15.23 |
|
3.10 |
13.88 |
|
12.98 |
|
|
|
|
|
|
|
|
|
Consolidated statement of comprehensive income for the year ended 31 December 2009
|
|
|
2009 |
2008 |
|
|
|
£'000 |
£'000 |
|
|
|
|
|
|
Actuarial loss arising from defined benefit pension schemes |
|
(8,475) |
(9,394) |
|
Movement on deferred tax relating to defined benefit pension schemes |
|
2,411 |
2,596 |
|
Revaluation of available-for-sale financial assets |
|
324 |
(2,207) |
|
Deferred tax on revaluation of available-for-sale financial assets |
|
(155) |
(382) |
|
Foreign exchange movement on hedged item |
|
- |
3,208 |
|
Transfer of foreign exchange movement on hedged item to cost of acquisition |
|
(3,208) |
- |
|
Currency translation differences |
|
2,912 |
11,579 |
|
Other comprehensive (loss)/income, net of tax |
|
(6,191) |
5,400 |
|
Profit for the year |
|
12,941 |
35,545 |
|
Total comprehensive income for the year |
|
6,750 |
40,945 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
- equity holders of the Company |
|
720 |
34,615 |
|
- minority interests |
|
6,030 |
6,330 |
|
Total comprehensive income for the year |
|
6,750 |
40,945 |
Consolidated statement of changes in equity for the year ended 31 December 2009
|
|
Attributable to equity holders of the Company |
|
|
||||||
|
|
Share capital |
Share premium |
Merger reserve |
Reverse acquisition reserve |
Other reserves |
Retained earnings |
Total |
Minority interests |
Total equity |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 January 2008 |
10,740 |
73,715 |
409,672 |
(312,238) |
11,032 |
13,661 |
206,582 |
15,336 |
221,918 |
|
Total comprehensive income for the year |
- |
- |
- |
- |
5,460 |
29,155 |
34,615 |
6,330 |
40,945 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
|
|
Share-based payments |
- |
- |
- |
- |
- |
2,131 |
2,131 |
- |
2,131 |
|
Deferred and current income tax on share-based payments |
- |
- |
- |
- |
- |
392 |
392 |
- |
392 |
|
Shares issued |
|
|
|
|
|
|
|
|
|
|
- employee share-based payments |
233 |
2,932 |
- |
- |
- |
- |
3,165 |
- |
3,165 |
|
Dividends paid |
- |
- |
- |
- |
- |
(4,297) |
(4,297) |
(5,874) |
(10,171) |
|
At 31 December 2008 |
10,973 |
76,647 |
409,672 |
(312,238) |
16,492 |
41,042 |
242,588 |
15,792 |
258,380 |
|
Total comprehensive income for the year |
- |
- |
- |
- |
(6,670) |
7,390 |
720 |
6,030 |
6,750 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
|
|
Share-based payments |
- |
- |
- |
- |
- |
1,737 |
1,737 |
- |
1,737 |
|
Deferred and current income tax on share-based payments |
- |
- |
- |
- |
- |
(1,091) |
(1,091) |
- |
(1,091) |
|
Shares issued |
|
|
|
|
|
|
|
|
- |
|
- in respect of Cambridge acquisition (net of issue costs) |
762 |
27,355 |
- |
- |
7,778 |
- |
35,895 |
- |
35,895 |
|
- employee share-based payments |
121 |
1,803 |
- |
- |
- |
- |
1,924 |
13 |
1,937 |
|
Other translation equity movements |
- |
- |
- |
- |
(1,990) |
- |
(1,990) |
- |
(1,990) |
|
Dividends paid/ payable |
- |
- |
- |
- |
- |
(5,487) |
(5,487) |
(6,317) |
(11,804) |
|
At 31 December 2009 |
11,856 |
105,805 |
409,672 |
(312,238) |
15,610 |
43,591 |
274,296 |
15,518 |
289,814 |
Consolidated balance sheet as at 31 December 2009
|
|
|
2009 |
2008 |
|
|
Note |
£'000 |
£'000 |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Goodwill |
|
259,613 |
95,558 |
|
Other intangible assets |
|
75,336 |
58,478 |
|
Property, plant and equipment |
|
30,707 |
24,486 |
|
Available-for-sale financial assets |
|
26,264 |
26,782 |
|
Trade and other receivables |
|
4,107 |
5,586 |
|
Retirement benefit assets |
|
396 |
407 |
|
Deferred income tax assets |
|
25,015 |
20,043 |
|
Total non-current assets |
|
421,438 |
231,340 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Trade and other receivables |
|
153,699 |
112,451 |
|
Cash and cash equivalents |
|
60,115 |
117,798 |
|
Total current assets |
|
213,814 |
230,249 |
|
Total assets |
|
635,252 |
461,589 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
(160,429) |
(117,598) |
|
Current income tax liabilities |
|
(6,444) |
(4,443) |
|
Financial liabilities - borrowings |
|
(16,361) |
(276) |
|
Financial liabilities - other |
|
(900) |
(974) |
|
Provisions |
5 |
(32,057) |
(6,617) |
|
Total current liabilities |
|
(216,191) |
(129,908) |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Trade and other payables |
|
(25,505) |
(13,215) |
|
Financial liabilities - borrowings |
|
(22,926) |
- |
|
Financial liabilities - other |
|
(22,404) |
(23,145) |
|
Deferred income tax liabilities |
|
(11,714) |
(5,666) |
|
Retirement benefit obligations |
|
(30,304) |
(18,587) |
|
Provisions |
5 |
(16,394) |
(12,688) |
|
Total non-current liabilities |
|
(129,247) |
(73,301) |
|
Total liabilities |
|
(345,438) |
(203,209) |
|
Net assets |
|
289,814 |
258,380 |
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
Ordinary shares |
|
11,856 |
10,973 |
|
Share premium |
|
105,805 |
76,647 |
|
Merger reserve |
|
409,672 |
409,672 |
|
Reverse acquisition reserve |
|
(312,238) |
(312,238) |
|
Other reserves |
|
15,610 |
16,492 |
|
Retained earnings |
|
43,591 |
41,042 |
|
Total shareholders' equity |
|
274,296 |
242,588 |
|
Minority interest in equity |
|
15,518 |
15,792 |
|
Total equity |
|
289,814 |
258,380 |
|
|
|
|
|
Consolidated cash flow statement for the year ended 31 December 2009
|
|
|
2009 |
2008 |
|
|
Note |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
Cash generated from operations |
6 |
62,937 |
69,715 |
|
Income tax paid |
|
(13,824) |
(8,896) |
|
Net cash from operating activities |
|
49,113 |
60,819 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Acquisition expenses |
|
(4,903) |
(391) |
|
Acquisition cost of subsidiaries |
|
(48,803) |
(5,890) |
|
Cash and cash equivalents acquired with subsidiaries |
|
3,947 |
627 |
|
Acquisition cost/expenses in relation to future acquisitions |
|
(8,674) |
(3,287) |
|
Interim payment of put option |
|
(890) |
(129) |
|
Purchase of available-for-sale financial assets |
|
(518) |
- |
|
Purchase of property, plant and equipment |
|
(13,640) |
(13,476) |
|
Purchase of intangible assets |
|
(18,081) |
(18,967) |
|
Pre-contract expenditure |
|
(1,129) |
(394) |
|
Proceeds from sale of property, plant and equipment |
|
221 |
85 |
|
Interest received |
|
1,514 |
5,391 |
|
Dividends received |
|
395 |
497 |
|
Net cash used in investing activities |
|
(90,561) |
(35,934) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Proceeds from issue of shares |
|
1,923 |
3,165 |
|
Transaction costs of shares issued |
|
(19) |
- |
|
Proceeds from borrowings |
|
31,930 |
- |
|
Repayment of borrowings |
|
(28,221) |
- |
|
Repayment of finance lease creditor |
|
(740) |
- |
|
Transaction costs of borrowings arranged |
|
(924) |
- |
|
Interest paid |
|
(3,408) |
(761) |
|
Dividends paid to equity shareholders |
|
(5,487) |
(4,297) |
|
Dividends paid to minority interests |
|
(4,296) |
(5,874) |
|
Net cash used in financing activities |
|
(9,242) |
(7,767) |
|
Effects of exchange adjustments |
|
(6,993) |
2,314 |
|
Net (decrease)/increase in cash and cash equivalents |
|
(57,683) |
19,432 |
|
Cash and cash equivalents at 1 January |
|
117,798 |
98,366 |
|
Cash and cash equivalents at 31 December |
|
60,115 |
117,798 |
1 Basis of preparation and accounting policies
The preliminary announcement for the full year ended 31 December 2009 has been prepared in accordance with the accounting policies as disclosed in Xchanging plc's 2008 Annual Report, as updated to take effect of any new accounting standards applicable for 2009 as set out in Xchanging plc's 2009 Half Year Report.
The annual financial information presented in this preliminary announcement for the year ended 31 December 2009 is based on, and is consistent with, that in the Group's audited financial statements for the year ended 31 December 2009, and those financial statements will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The independent auditors' report on those financial statements is unqualified and does not contain any statement under section 498 (2) or 498 (3) of the Companies Act 2006.
Information in this preliminary announcement does not constitute statutory accounts of the Group within the meaning of section 434 of the Companies Act 2006. The full financial statements for the Group for the year ended 31 December 2008 have been delivered to the Registrar of Companies. The independent auditor's report on those financial statements was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985.
2 Segmental reporting
Following the acquisition of Cambridge Solutions Limited, the segments previously reported under Business Lines, Financial Markets, Insurance and BPS & Corporate have been restructured. The Group has determined the new operating segments based on the management organisational structure and monitoring of performance by the Xchanging Management Board (XMB), the chief operating decision-maker. Six reportable operating segments have been identified, which form the basis of the segmental reporting note. These are UK, Americas, Continental Europe, Asia Pacific, Global Procurement and Central. A brief description of each segment follows:
·; UK is a cross-industry sector providing insurance BPO services, human resources, finance and accounting, and technology;
·; Americas comprises the provision of cross-industry IT products and services, alongside both workers' compensation and other specialist insurance claims processing services for customers across the USA;
·; Continental Europe is an industry specific sector in which the Group provides BPO services to financial markets customers;
·; Asia Pacific contains the Group's offshore business processing services function, which provides accounting, pension administration and broking services to a range of cross-industry customers. It also includes the workers' compensation claims processing services business in Australia;
·; Global Procurement is a cross-industry sector in which the Group provides procurement services to a range of customers across geographical borders; and
·; Central provides the infrastructure, resources and investment to sustain and grow the Group, including the corporate sales and commercial, performance management, implementation and business management functions.
Management uses Xchanging's share of underlying operating profit (XEBIT) as a measure of segment result. XEBIT represents underlying operating profit attributable to equity holders of the Group. Underlying operating profit excludes the effects of non-recurring expenditure from the operating segments such as restructuring costs. The measure also excludes the amortisation of intangible assets previously unrecognised by an acquired entity and imputed interest on both put options issued to minority interests and employee loans. Interest income and expenditure are not allocated to segments, as this type of activity is driven by the Group treasury function, which manages the cash position of the whole Group.
Management makes regular use of this XEBIT measure to evaluate performance in the operating segments, both in absolute terms and comparatively from period to period, and to allocate resources among its operating segments. Management believes that this measure provides a better understanding, for both management and investors, of the operating results of its business segments for the period under review.
Xchanging's reportable segments account for inter segment sales and transfers as if the sales or transfers were to third parties, i.e. at current market prices.
Unallocated assets include deferred tax assets. Unallocated liabilities include current income tax liabilities, deferred tax liabilities, borrowings, and other financial liabilities.
The segment information for the year ended 31 December 2009 is as follows:
|
|
UK |
Americas |
Continental Europe |
Asia Pacific |
Global Procure-ment |
Central |
Total |
|
Year ended 31 December 2009 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
|
Revenue |
237,689 |
145,9311 |
165,126 |
47,534 |
185,366 |
187 |
781,833 |
|
- from external customers |
228,024 |
140,530 |
165,097 |
32,951 |
183,627 |
187 |
750,416 |
|
- inter segment |
9,665 |
5,401 |
29 |
14,583 |
1,739 |
- |
31,417 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
10,228 |
10,907 |
9,014 |
3,470 |
2,090 |
2,262 |
37,971 |
|
|
|
|
|
|
|
|
|
|
Xchanging's share of underlying operating profit/(loss) (XEBIT) |
30,307 |
6,744 |
12,864 |
8,142 |
12,476 |
(18,125) |
52,408 |
|
XEBIT margin |
12.8% |
4.6% |
7.8% |
17.1% |
6.7% |
|
7.0% |
|
|
|
|
|
|
|
|
|
|
Underlying operating profit/(loss) |
38,899 |
7,095 |
13,195 |
10,335 |
12,476 |
(18,125) |
63,875 |
|
Underlying operating profit margin |
16.4% |
4.9% |
8.0% |
21.7% |
6.7% |
|
8.5% |
|
|
|
|
|
|
|
|
|
|
Adjustment of certain non-cash items: |
|
|
|
|
|
|
|
|
- amortisation of intangible assets previously unrecognised by an acquired entity |
(161) |
(7,575) |
(444) |
(1,571) |
(205) |
- |
(9,956) |
|
Operating profit/(loss) before central costs and exceptional operating costs |
38,738 |
(480) |
12,751 |
8,764 |
12,271 |
(18,125) |
53,919 |
|
|
|
|
|
|
|
|
|
|
Allocation of central costs: |
|
|
|
|
|
|
|
|
- investment in Enterprise Partnerships |
(50) |
- |
- |
- |
- |
50 |
- |
|
- depreciation and amortisation |
(1,503) |
- |
(526) |
- |
(205) |
2,234 |
- |
|
- other |
468 |
- |
(163) |
- |
22 |
(327) |
- |
|
Operating profit/(loss) before exceptional operating costs |
37,653 |
(480) |
12,062 |
8,764 |
12,088 |
(16,168) |
53,919 |
|
|
|
|
|
|
|
|
|
|
Exceptional operating costs (note 3) |
(5,462) |
(12,446) |
(3,378) |
(990) |
(988) |
(5,896) |
(29,160) |
|
Operating profit/(loss) |
32,191 |
(12,926) |
8,684 |
7,774 |
11,100 |
(22,064) |
24,759 |
|
Finance costs |
|
|
|
|
|
|
(14,283) |
|
Finance income |
|
|
|
|
|
|
8,982 |
|
Taxation |
|
|
|
|
|
|
(6,517) |
|
Profit for the year |
|
|
|
|
|
|
12,941 |
|
|
|
|
|
|
|
|
|
|
Segment assets |
132,910 |
151,575 |
121,057 |
132,843 |
100,109 |
74,852 |
713,346 |
|
- Inter segment assets |
(7,806) |
(11,093) |
(107) |
(17,439) |
(1,110) |
(65,554) |
(103,109) |
|
- Unallocated assets |
|
|
|
|
|
|
25,015 |
|
Total assets |
125,104 |
140,482 |
120,950 |
115,404 |
98,999 |
9,298 |
635,252 |
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
(82,727) |
(155,953) |
(58,002) |
(9,040) |
(37,661) |
(24,416) |
(367,799) |
|
- Inter segment liabilities |
25,354 |
65,648 |
3,638 |
1,004 |
4,145 |
3,320 |
103,109 |
|
- Unallocated liabilities |
|
|
|
|
|
|
(80,748) |
|
Total liabilities |
(57,373) |
(90,305) |
(54,364) |
(8,036) |
(33,516) |
(21,096) |
(345,438) |
|
|
|
|
|
|
|
|
|
|
Capital expenditure |
11,071 |
105,753 |
9,163 |
102,205 |
563 |
3,673 |
232,428 |
The segment information for the year ended 31 December 2008 is as follows:
|
|
UK |
Americas |
Continental Europe |
Asia Pacific |
Global Procure-ment |
Central |
Total |
|
Year ended 31 December 2008 (restated) |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
|
Revenue |
209,739 |
32,056 |
150,280 |
5,430 |
177,897 |
794 |
576,196 |
|
- from external customers |
201,658 |
28,263 |
150,199 |
- |
176,849 |
794 |
557,763 |
|
- inter segment |
8,081 |
3,793 |
81 |
5,430 |
1,048 |
- |
18,433 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation |
6,968 |
487 |
6,118 |
284 |
1,600 |
3,258 |
18,715 |
|
|
|
|
|
|
|
|
|
|
Xchanging's share of underlying operating profit/(loss) (XEBIT) |
21,508 |
5,571 |
14,918 |
762 |
14,293 |
(18,560) |
38,492 |
|
XEBIT margin |
10.3% |
17.4% |
9.9% |
14.0% |
8.0% |
|
6.9% |
|
|
|
|
|
|
|
|
|
|
Underlying operating profit/(loss) |
29,601 |
5,571 |
15,678 |
762 |
14,293 |
(18,560) |
47,345 |
|
Underlying operating profit margin |
14.1% |
17.4% |
10.4% |
14.0% |
8.0% |
|
8.5% |
|
|
|
|
|
|
|
|
|
|
Adjustment of certain non-cash items: |
|
|
|
|
|
|
|
|
- amortisation of intangible assets previously unrecognised by an acquired entity |
(219) |
(88) |
(370) |
- |
(209) |
- |
(886) |
|
Operating profit/(loss) before central costs and exceptional operating costs |
29,382 |
5,483 |
15,308 |
762 |
14,084 |
(18,560) |
46,459 |
|
|
|
|
|
|
|
|
|
|
Allocation of central costs: |
|
|
|
|
|
|
|
|
- investment in Enterprise Partnerships |
(24) |
- |
- |
- |
- |
24 |
- |
|
- depreciation and amortisation |
(1,367) |
- |
(527) |
- |
(307) |
2,201 |
- |
|
- other |
501 |
- |
(315) |
- |
(50) |
(136) |
- |
|
Operating profit/(loss) before exceptional operating costs |
28,492 |
5,483 |
14,466 |
762 |
13,727 |
(16,471) |
46,459 |
|
|
|
|
|
|
|
|
|
|
Exceptional operating costs (note 3) |
- |
- |
- |
- |
- |
- |
- |
|
Operating profit /(loss) |
28,492 |
5,483 |
14,466 |
762 |
13,727 |
(16,471) |
46,459 |
|
Finance costs |
|
|
|
|
|
|
(11,388) |
|
Finance income |
|
|
|
|
|
|
14,095 |
|
Taxation |
|
|
|
|
|
|
(13,621) |
|
Profit for the year |
|
|
|
|
|
|
35,545 |
|
|
|
|
|
|
|
|
|
|
Segment assets |
125,767 |
39,534 |
120,859 |
4,135 |
100,404 |
97,580 |
488,279 |
|
- Inter segment assets |
(6,951) |
(9,195) |
(598) |
(305) |
(1,134) |
(28,550) |
(46,733) |
|
- Unallocated assets |
|
|
|
|
|
|
20,043 |
|
Total assets |
118,816 |
30,339 |
120,261 |
3,830 |
99,270 |
69,030 |
461,589 |
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
(65,897) |
(29,635) |
(58,553) |
(1,335) |
(37,079) |
(23,925) |
(216,424) |
|
- Inter segment liabilities |
23,745 |
10,650 |
5,341 |
44 |
5,204 |
1,755 |
46,739 |
|
- Unallocated liabilities |
|
|
|
|
|
|
(33,524) |
|
Total liabilities |
(42,152) |
(18,985) |
(53,212) |
(1,291) |
(31,875) |
(22,170) |
(203,209) |
|
|
|
|
|
|
|
|
|
|
Capital expenditure |
14,415 |
3,341 |
18,705 |
378 |
6,626 |
979 |
44,444 |
3 Exceptional items
|
|
|
2009 |
2008 |
|
|
|
£'000 |
£'000 |
|
Exceptional items included in cost of sales comprise the following: |
|
|
|
|
Cambridge acquisition and integration costs |
|
16,734 |
- |
|
Lean processor strategy restructuring |
|
17,393 |
- |
|
Release of Phoenix provision |
|
(4,967) |
- |
|
Total exceptional items included in cost of sales |
|
29,160 |
- |
The Cambridge acquisition and integration costs incurred during the period of £16,734,000 (2008; £nil) relate to specific costs incurred as a consequence of the acquisition of Cambridge Solutions Limited and its subsidiaries (Cambridge). These costs were incurred as a result of the implementation of significant restructuring efforts to integrate Cambridge into the Xchanging business. Key aspects of the implementation programme include the major restructuring of the US BPO business, with the significant consolidation of existing sites into a few key locations. The charge consists of costs related to the restructuring of the US BPO business, including onerous lease provisions, asset impairments, severance pay and other costs associated with the management and implementation of the integration plan.
As part of the Cambridge acquisition and integration costs, the consolidation of existing US sites into a few key locations has resulted in a number of vacant properties from which the Group has been unable to terminate its commitments. The onerous lease provisions created represent the remaining costs, primarily rent, associated with these vacant properties. The impairment of assets represents the accelerated depreciation on those assets associated with the vacant properties discussed.
Lean processor strategy restructuring costs of £17,393,000 (2008: £nil) provided for during the year relate to redundancy costs incurred primarily in the UK and Germany. This reflects combining operations in the UK, further increasing offshoring activities to India, and streamlining operations in Germany.
An exceptional gain of £4,967,000 (2008: £nil) has been recognised in the year from the release of the Phoenix provision. This provision was held against a potential liability arising from Fondsdepot Bank GmbH's membership of the Entschädigungseinrichtung der Wertpapierhandelsunternehmen (EdW) banking group in Germany. Fondsdepot Bank GmbH obtained a full banking licence in January 2010, and has subsequently left the EdW. Consequently its obligation to make any future payments has been removed.
4 Earnings per share
Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares of Xchanging plc. For diluted earnings per share, the weighted average number of ordinary shares in existence is adjusted to include all potential dilutive ordinary shares. The Group has two types of potential dilutive ordinary shares: share options, and share awards under the Performance Share Plan to the extent that the performance criteria for vesting of the awards are expected to be met.
|
|
Earnings |
Weighted average number of shares |
Earnings per share |
|
|
£'000 |
thousands |
pence |
|
Basic earnings per share: |
|
|
|
|
- 31 December 2009 |
7,390 |
235,447 |
3.14 |
|
- 31 December 2008 |
29,155 |
216,447 |
13.47 |
|
Diluted earnings per share: |
|
|
|
|
- 31 December 2009 |
7,390 |
238,059 |
3.10 |
|
- 31 December 2008 |
29,155 |
224,628 |
12.98 |
The following reflects the share data used in the basic and diluted earnings per share calculations:
|
|
|
2009 |
2008 |
|
|
|
thousands |
thousands |
|
Weighted average number of ordinary shares for basic earnings per share |
|
235,447 |
216,447 |
|
Dilutive potential ordinary shares: |
|
|
|
|
- employee share options |
|
2,612 |
4,918 |
|
- awards under the Performance Share Plan |
|
- |
3,263 |
|
Weighted average number of ordinary shares for diluted earnings per share |
|
238,059 |
224,628 |
Underlying basic and diluted earnings per share
In addition to the above, underlying earnings per share value is disclosed to provide a better understanding of the underlying trading results of the Group. This underlying value is the KPI used to measure the Group's performance.
|
|
Earnings |
Weighted average number of shares |
Earnings per share |
|
|
£'000 |
thousands |
pence |
|
Underlying basic earnings per share: |
|
|
|
|
- 31 December 2009 |
36,259 |
235,447 |
15.40 |
|
- 31 December 2008 |
31,170 |
216,447 |
14.40 |
|
Underlying diluted earnings per share: |
|
|
|
|
- 31 December 2009 |
36,259 |
238,059 |
15.23 |
|
- 31 December 2008 |
31,170 |
224,628 |
13.88 |
The underlying earnings per share figures are calculated based on the Xchanging share of underlying net profit, divided by the basic and diluted weighted average number of shares as stated above.
The Xchanging share of underlying profit for the year is calculated as follows:
|
|
|
2009 |
2008 |
|
|
|
£'000 |
£'000 |
|
Profit for the year attributable to Xchanging equity holders |
|
7,390 |
29,155 |
|
Exceptional items (net of tax) |
|
24,179 |
- |
|
Amortisation of intangible assets previously unrecognised by an acquired entity (net of tax) |
|
6,192 |
613 |
|
Imputed interest and fair value adjustments on put options (net of tax) |
|
1,094 |
1,562 |
|
Imputed interest on employee loans through the Share Purchase Plan (net of tax) |
|
- |
(160) |
|
Minority interests share of adjustments (net of tax) |
|
(2,596) |
- |
|
Underlying profit for the year attributable to Xchanging equity holders |
|
36,259 |
31,170 |
In prior years, IFRS 2 share-based payment charges were also excluded from underlying profit. In the current year, IFRS 2 share-based payments charges of £1,911,000 (2008: £2,313,000) and the tax effect of these are included in underlying profit to align with current market practices. The prior year comparatives have been restated to enable a like-for-like comparison.
5 Provisions
|
|
Phoenix |
Onerous lease |
Restructuring |
Operational risk |
Early and part-time retirement |
Long service |
Litigation provision |
Other |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 January 2008 |
3,356 |
5,003 |
166 |
2,054 |
5,263 |
1,135 |
- |
4,539 |
21,516 |
|
Transfers (to)/from accruals |
- |
- |
- |
- |
- |
604 |
- |
(347) |
257 |
|
Reallocation of provisions held by recently acquired subsidiaries |
424 |
- |
- |
- |
- |
- |
- |
(424) |
- |
|
Charged/(credited) to the income statement: |
|
|
|
|
|
|
|
|
|
|
- provided in the year |
- |
276 |
811 |
265 |
503 |
- |
- |
1,380 |
3,235 |
|
- released in the year |
- |
(535) |
(168) |
(946) |
(1,494) |
(242) |
- |
(1,354) |
(4,739) |
|
- unwinding of discount |
193 |
134 |
- |
- |
- |
- |
- |
- |
327 |
|
Used in the year |
- |
(1,822) |
- |
(442) |
(1,752) |
(199) |
- |
(1,498) |
(5,713) |
|
Exchange adjustments |
1,257 |
645 |
2 |
405 |
1,051 |
458 |
- |
604 |
4,422 |
|
At 31 December 2008 |
5,230 |
3,701 |
811 |
1,336 |
3,571 |
1,756 |
- |
2,900 |
19,305 |
|
Acquisitions |
- |
14,739 |
482 |
- |
- |
299 |
7,397 |
3,003 |
25,920 |
|
Reallocation of provisions |
- |
- |
- |
- |
(110) |
(798) |
- |
908 |
- |
|
Charged/(credited) to the income statement: |
|
|
|
|
|
|
|
|
|
|
- provided in the year |
- |
2,843 |
17,039 |
623 |
623 |
152 |
511 |
1,707 |
23,498 |
|
- released in the year |
(4,967) |
(2,202) |
- |
(112) |
- |
- |
- |
(609) |
(7,890) |
|
- unwinding of discount |
183 |
498 |
- |
- |
- |
- |
- |
7 |
688 |
|
Used in the year |
- |
(4,838) |
(1,167) |
(82) |
(1,334) |
(92) |
(304) |
(1,884) |
(9,701) |
|
Exchange adjustments |
(446) |
(1,480) |
45 |
(97) |
(269) |
(31) |
(670) |
(421) |
(3,369) |
|
At 31 December 2009 |
- |
13,261 |
17,210 |
1,668 |
2,481 |
1,286 |
6,934 |
5,611 |
48,451 |
Of the £17,039,000 restructuring provision provided for during the year, £16,793,000 has been included within the lean processor strategy restructuring costs and £246,000 has been included within the Cambridge acquisition and integration costs, both of which are exceptional items in the year (refer to note 3).
Provisions have been analysed between current and non-current as follows:
|
|
|
2009 |
2008 |
|
|
|
£'000 |
£'000 |
|
Current |
|
32,057 |
6,617 |
|
Non-current |
|
16,394 |
12,688 |
|
|
|
48,451 |
19,305 |
The Phoenix provision related to future payments which one of the Group companies, Fondsdepot Bank GmbH, may have to make to the Entschädigungseinrichtung der Wertpapierhandelsunternehmen (EdW), a federal special fund aimed at protecting investors, as a result of a securities fraud committed by one of the EdW member companies. As Fondsdepot Bank GmbH has subsequently left the EdW following it obtaining a full banking licence in January 2010, the Phoenix provision is no longer required, and has been released in full.
The onerous lease provision relates to dilapidations and a shortfall between expected sub-letting rents and future costs on a number of operating leases. The provision was largely acquired by the Xchanging Group as part of the acquisition of Cambridge Solutions Limited and mostly arises within the Americas region. Additional amounts have been provided as a result of the consolidation of existing Cambridge sites into a few key locations. The leases provided for have between two and seven years left to run.
The restructuring provision relates to an estimate of the cost of the lean processor strategy restructuring of the Xchanging Group announced in 2009, and expected to be completed by the end of 2010.
The operational risk provision comprises an estimated liability in respect of identified operating errors which had occurred in the ordinary course of business in the Continental Europe region up to 31 December 2009. This is an ongoing provision representative of the nature of the securities processing market.
The early and part-time retirement provision mainly arises from a statutory requirement for German businesses and is calculated under IAS 19 with reference to actuarial reports. The Group offers long-serving employees the opportunity to retire before reaching the statutory age of retirement. As the utilisation of the provision is dependent on the uptake of this opportunity by employees, and the timing of their decision to do so, the provision is determined using actuarial assumptions.
Employees within the German, Australian and Indian entities receive long service awards for 10 years or more of service. These awards take the form of either a payment, or paid leave. The amount of the provision recognised is based on actuarial valuations which are updated at each reporting date. As the amount and timing of utilisation of this provision is based on estimates of the number of employees likely to stay with the Group in excess of 10 years, which is outside the Group's control, there is an element of uncertainty surrounding the timing of utilisation of this provision.
The litigation provision relates to a number of ongoing claims arising primarily within the US BPO business. The utilisation of the litigation provision is dependent on the timing of the settlement of the underlying cases. Although some significant cases are expected to be settled during the first half of 2010, the settlement of others is, to an extent, outside the Group's control. There is therefore an element of uncertainty regarding the timing of a proportion of this provision's utilisation.
The other provisions include other personnel related provisions, being provisions for profit sharing, retention bonuses, gratuities and leave encashment, provisions for archiving required under banking regulations, technology and communications, and consultancy.
6 Cash generated from operations
|
|
|
2009 |
2008 |
|
|
|
£'000 |
£'000 |
|
Profit before tax |
|
19,458 |
49,166 |
|
Net finance cost/ (income) |
|
5,301 |
(2,707) |
|
Operating profit |
|
24,759 |
46,459 |
|
Adjustment for non-cash items: |
|
|
|
|
- employee share-based payment charges |
|
1,911 |
2,131 |
|
- depreciation |
|
14,659 |
6,191 |
|
- amortisation of intangibles |
|
22,959 |
11,090 |
|
- amortisation of pre-contract costs |
|
1,388 |
1,434 |
|
- loss on disposal of property, plant and equipment and intangibles |
|
102 |
349 |
|
- write-off of intangibles and property, plant and equipment |
|
- |
136 |
|
|
|
65,778 |
67,790 |
|
Changes in working capital (excluding the effects of business combinations): |
|
|
|
|
- increase in trade and other receivables |
|
(9,923) |
(1,480) |
|
- (decrease)/increase in payables |
|
(272) |
5,992 |
|
- decrease/(increase) in pensions |
|
1,427 |
(148) |
|
- increase/ (decrease) in provisions |
|
5,927 |
(2,439) |
|
Cash generated from operations |
|
62,937 |
69,715 |
|
|
|
|
|
7 Business combinations
Cambridge Solutions Limited
On 3 October 2008, Xchanging plc agreed to acquire 75% of the fully diluted share capital (76.055% of the issued share capital) of Cambridge Solutions Limited, an international BPO and IT services provider with a global presence established through offices in eight countries, including India, the USA and Australia. Cambridge Solutions Limited is listed on the Bombay, National, Madras and Ahmedabad stock exchanges. This acquisition was achieved via agreements reached between Xchanging and the three major shareholders of Cambridge Solutions Limited. In compliance with Indian law and as a consequence of these agreements, Xchanging was required to make an Open Offer to acquire up to 20% of the fully diluted share capital of Cambridge Solutions Limited.
The Open Offer to the public completed on 2 April 2009, with the acquisition of shares under the share purchase agreements completing subsequently on 9 April 2009. However, pursuant to the terms of the sales and purchase agreements entered into, certain rights were assumed by Xchanging plc in advance of this final completion date. A number of these rights were enacted from 1 January 2009, and therefore it is from this date that the power of operational control was considered to have passed, and is the date from which Cambridge Solutions Limited's results have been consolidated by the Group. David Andrews and Richard Houghton were appointed to the board of Cambridge Solutions Limited on 12 January 2009.
The total consideration for the acquisition was £92,621,000, settled through the payment of INR 3,711,000,000 (£48,500,000 at the prevailing exchange rate), and through the issue of 15,249,998 Xchanging plc shares (£35,895,000 based on the market share price of 235.5 pence per share prevailing on the date of operational control being assumed). Costs totalling £8,209,000 have been incurred in respect of the acquisition.
The Cambridge group contributed revenue of £146,000,000, underlying profit of £6,125,000 a statutory loss after tax of £11,500,000 to the Group for the period from acquisition to 31 December 2009.
The book and fair values of the acquired assets and liabilities as at 1 January 2009 are set out below:
|
|
Acquiree's carrying amount |
|
Net adjustments |
|
Fair value |
|
|
£'000 |
|
£'000 |
|
£'000 |
|
Intangible assets (excluding goodwill) |
12,901 |
|
12,300 |
|
25,201 |
|
Property, plant and equipment |
8,546 |
|
(34) |
|
8,512 |
|
Available-for-sale financial assets |
2,014 |
|
(1,620) |
|
394 |
|
Held-for-trading financial assets |
153 |
|
1,373 |
|
1,526 |
|
Deferred income tax assets |
833 |
|
- |
|
833 |
|
Trade and other receivables |
32,668 |
|
(3,137) |
|
29,531 |
|
Cash and cash equivalents |
4,050 |
|
(103) |
|
3,947 |
|
Trade and other payables |
(41,524) |
|
(22,803) |
|
(64,327) |
|
Current income tax liabilities |
(2,643) |
|
(984) |
|
(3,627) |
|
Financial liabilities - borrowings |
(40,446) |
|
191 |
|
(40,255) |
|
Deferred income tax liabilities |
(946) |
|
(8,649) |
|
(9,595) |
|
Provisions |
(15,393) |
|
(10,527) |
|
(25,920) |
|
Net liabilities acquired |
(39,787) |
|
(33,993) |
|
(73,780) |
The fair value adjustments in respect of intangible assets are due to the recognition of £23,200,000 in respect of customer relationships, offset by the write-off of £10,900,000 of intangibles recorded on Cambridge Solutions Limited's balance sheet prior to the acquisition. An adjustment to deferred income of £21,200,000 has been recognised in respect of certain run-off contracts operated by Cambridge Solutions Limited for which the amount of revenue previously recognised has been re-assessed in light of revised estimations of costs expected to be incurred to close all outstanding claims. For details of provisions recognised as a result of the acquisition of Cambridge Solutions Limited, please refer to note 5. The adjustments to current assets, current liabilities, provisions and deferred tax liabilities relate to valuation adjustments and are final, based on management's best estimates.
Goodwill represents the value of both sales and cost synergies expected to arise from combining and integrating the operations of Cambridge Solutions Limited into the Xchanging Group; the strategic premium offered by the potential for Xchanging to enter and establish critical mass in a global marketplace (a 'global footprint'); to customer relationships that are not legally secured and therefore could not be separately identified as an IFRS 3 intangible asset; and the value of the assembled Cambridge workforce.
Details of net liabilities acquired and goodwill are as follows:
|
|
|
£'000 |
|
Purchase consideration |
|
|
|
- Cash |
|
48,517 |
|
- Issue of shares |
|
35,895 |
|
- Costs of acquisition |
|
8,209 |
|
Total purchase consideration |
|
92,621 |
|
Xchanging's share of the fair value of net liabilities acquired |
|
73,780 |
|
Minority interest's share of the fair value of net liabilities acquired |
|
- |
|
Goodwill |
|
166,401 |
Related Shares:
XCH.L