3rd Aug 2009 07:00
XCHANGING PLC
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2009
Financial Highlights:
|
6 months ended 30 June 2009 |
6 months ended 30 June 2008 |
Increase |
|
|
Revenue |
£367.1m |
£266.8m |
38% |
|
Underlying operating profit (1) |
£25.3m |
£18.3m |
38% |
|
Xchanging's share of underlying operating profit (XEBIT) (1) |
£20.3m |
£14.3m |
42% |
|
XEBIT margin |
5.5% |
5.4% |
+15 basis points |
|
Xchanging's share of underlying profit after tax (2) |
£14.6m |
£11.7m |
25% |
|
Underlying EPS - basic |
6.2p |
5.4p |
14% |
Key points:
Revenue growth of 38% driven by strong underlying performance and Cambridge acquisition
XEBIT growth of 42% highlighting cost discipline and margin expansion (+15bps)
Integration of Cambridge Solutions progressing successfully
US restructuring programme largely complete
Added over 500 new customers mainly in the US and Asia
Strong incremental customer demand despite difficult economic conditions
Over £900 million of new contract wins and renewals
Increased opportunities in the pipeline
Consolidation of German investment account administration market with FondsServiceBank acquisition (expected to complete in early 2010)
David Andrews, CEO of Xchanging, commented:
"Despite challenging economic conditions, we have continued to deliver profitable growth in the first half of the year. We have good revenue visibility for the rest of the year and a growing pipeline of opportunities.
"The successful integration of Cambridge delivers our IPO aim of establishing a global footprint. We now have more than 1,000 customers globally and we are ideally positioned to cross sell our broad range of BPO and IT services to meet their requirements. We therefore believe that Xchanging is well placed to take advantage of the next growth phase in the global BPO market."
Notes:
(1) Underlying operating profit excludes exceptional items (H1 2009: £12 million, H1 2008: Nil) and amortisation of intangible assets previously unrecognised by acquired entities (H1 2009: £4.5 million, H1 2008: £0.3 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 (H1 2009: £1.3 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 (H1 2008: £1.0 million).
(2) Underlying profit after tax 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 August 2009
Enquiries:
|
Xchanging plc |
|
|
David Andrews, Chief Executive Officer |
|
|
Richard Houghton, Chief Financial Officer |
Tel: 020 7780 6999 |
|
Tulchan Communications |
|
|
David Allchurch |
Tel: 020 7353 4200 |
|
Stephen Malthouse |
A presentation for investors and analysts will be held at Xchanging's offices at 34 Leadenhall Street, London, EC3A 1AX at 09:00 on 3 August 2009.
About Xchanging
Xchanging is a global business processor. We deliver procurement, accounting, HR, technology and mission-critical industry-specific processing services to customers in 42 countries. www.xchanging.com
Half Year Results for the 6 months to 30 June 2009
Executive summary
Financial Overview
It has been a challenging yet successful first half of 2009 for the Group. Reported revenue for the six months ended 30 June 2009 was £367.1 million, an increase of 38% on the previous half year (H1 2008: £266.8 million). Underlying operating profit attributable to Xchanging shareholders (XEBIT) grew 42% to £20.3 million (H1 2008: £14.3 million), with operating margins up 15 basis points to 5.5%. Underlying basic Earnings Per Share (EPS) grew 14% to 6.2p from 5.4p.
We completed the acquisition of Cambridge Solutions on 9 April 2009 but it has been consolidated from 1 January 2009 which was deemed to be the date of change of control.
Organic growth was 8.8% compared with H1 2008 driven by additional services to existing customer base - particularly in UK insurance and Germany, and the impact of new contracts. We have also benefited from exchange rate gains, mainly against the Euro. This growth has been partially offset by lower volumes in banking and weak Business Support revenues across the board.
Excluding Cambridge, XEBIT grew 17.5% and operating margins increased by 43 basis points to 5.8%. Margins improved due to revenue growth, productivity improvements and leveraging central costs.
Cambridge made a contribution to the Group of £76.8 million in revenues and £3.4 million of XEBIT with an XEBIT margin of 4.4%.
Underlying profit after tax attributable to Xchanging shareholders grew by 25%.
The Group held £63.4 million in cash at the end of the period.
Business Overview
During the first half of 2009, we have continued to see strong demand for our services despite the adverse impact on certain parts of our business arising from the economic slowdown. We have won a number of new contracts and achieved a 100% contract renewal rate. To date, the aggregate contractual value of business won has been over £900 million. Highlights have been:
a five-year procurement contract with Alexander Mann Solutions
a seven-year contract with Aon Benfield to provide insurance broking services in the UK
an enterprise licence agreement with QBE and associated implementation services
The integration of Cambridge is going well, with the major US restructuring programme successfully completed in the first half.
We are actively participating in the consolidation of the investment account processing market in Germany. Our acquisition of FondsService Bank (FSB) makes us the leading independent provider of investment account administration services in Germany.
Finally, we have significantly enhanced our senior and middle management team to support our planned move to a regional reporting structure and to position the company for growth.
Outlook
The slow down in the economic activity has had an adverse effect on certain parts of our business, particularly in transaction processing and areas of discretionary spend such as IT. This slowdown is consistent with the trends being reported by industry commentators such as IDC. Encouragingly, today's $120 billion global BPO market is forecast to bounce back with the market increasing by more than £50 billion over the next 4 years.
We believe that Xchanging is particularly well placed to take advantage of this next growth phase in the global BPO industry. With the integration of Cambridge, we have more than 1,000 customers around the globe, a large proportion of whom are in the US, the largest BPO market in the world. We have a significant opportunity to broaden and deepen our relationships with these customers leveraging our broad range of offerings to meet their business processing requirements. We should also benefit from higher levels of transactions and discretionary spend as the global economy recovers.
We have good revenue visibility for the rest of the year and beyond and we are seeing considerable interest from existing and new customers who are looking to reduce costs and minimise investment in their non-core operations. We have a well stocked pipeline with 30 opportunities each having more than £20 million of annual value: 18 opportunities are in the Interest stage*, eight opportunities in Shaping*, two opportunities in Validation* and a further two in Conclusion*. The pipeline is larger than this time last year as companies are now moving beyond tactical measures and are seeking structural solutions for their back offices.
* Note: Interest stage - establishing and developing initial interest by customer; Shaping - agreeing the size and scope of the deal with the customer. Concludes with Memorandum of Understanding; Validation - performing detailed due diligence. Concludes with Letter of Intent; Conclusion - Final preparation. Concludes with contract.
Creating value for shareholders
Xchanging is focused on delivering value for shareholders by leveraging our key strengths:
Strong competitive position
Sustainable growth
High revenue visibility
Margin upside
Proven management
Strong competitive position
With the Cambridge acquisition Xchanging has enhanced its strong competitive position and we believe that we are well positioned to capitalise on the rapid growth that is forecast in the global BPO market over the next few years. First, we are one of only a handful of companies able to provide services to multinational customers on a global basis. We already have an enviable list of blue-chip customers across the globe, in a diversified range of industries including insurance, banking, retail, manufacturing, real estate and logistics. Second, we specialise in managing complex and large-scale processes where we have the opportunity to become the business processor of choice for specific industry niches, such as securities processing, claims processing and investment account administration services. The effective delivery of these services necessitates a balanced onshore/offshore model that is again difficult to replicate. Finally, we have a track record in managing processes in regulated environments.
Sustainable growth
IDC forecasts a $50 billion increase in the global BPO market over the next four years to $172 billion by 2013, a compounded annual growth rate of 10%. Xchanging, with a global footprint providing a full range of BPO offerings, is a recognised leader in BPO and is well positioned to capitalise on this future growth.
With the Cambridge acquisition we have added over 500 new customers to the Group. This gives us a huge opportunity to provide additional services to the existing customer base where we still have a relatively small share of their back office spend.
We therefore believe that sustainable growth will come from new customers in a structural growth market as well as from building deeper relationships with a broader customer base. Both of these drivers are evident in our pipeline.
High revenue visibility
Revenue visibility is underpinned by long-term contracts and high customer stickiness. The Group typically has well over 80% visibility of the revenues to be achieved in the year at the beginning of that year and around 90% visibility by the middle of the year.
Certain segments of our business, particularly in respect to transaction volumes and asset values in the banking sector, claims volumes in the US, IT and Business Support revenues are exposed to general economic conditions. The revenues we consider to be at risk account for only around 20% of the Group's revenues.
Margin upside
Our focus has consistently been on profitable growth, growing XEBIT margins from 3.5% in 2004 to 5.5% in H1 2009. This has been achieved during a period of significant revenue growth resulting in significant growth in Earnings Per Share over the period.
Cambridge's margins are broadly in line with where Xchanging was in 2005. We therefore expect to be able to improve the Cambridge margins, especially following the restructuring of the US BPO business.
We continue to expect to be able to grow margins at the Group level for the following reasons:
Adding volumes to our existing platforms
Ongoing consolidation of processing centres into larger hubs
Nearshoring and offshoring
Leveraging central costs as the Group continues to grow
Proven management
We have a strong management team with a proven track record. At its core, there are a number of individuals who have led the business since its inception ten years ago. We have also added breadth to the senior and middle management teams over the past six months. At the senior executive level we have added Matthias Sohler (Head of Continental Europe), Stewart McCulloch (Head of UK), Lori Doyle (Head of Marketing) and Daniel Kasmir (HR Director). At the next level we have added very experienced Heads of Business Development in the Americas, Continental Europe and the UK. We have also strengthened operational management. In all, we have recruited over ten senior managers to position ourselves for the next growth phase of the company.
We continuously seek to identify and hire talented people. We are in the process of introducing a Global Learning Management System which will allow us to extend the development and skills of our global workforce.
Delivering on our strategy
We have a clear three pronged strategy aimed at accelerating growth and creating shareholder value:
grow existing platforms
add new platforms
become the lean processor
Growing existing platforms
UK
In broking services, we have extended our relationship with Aon by taking on the processing for Aon Benfield. This is a seven year contract to provide insurance broking services in the UK. The contract commenced on 1 April 2009 and is progressing well. We have also benefited from the Cooper Gay contract which we did not have in H1 2008.
A key achievement in the London Insurance Market has been the completion of the project to upgrade the Insurance Market Repository (IMR). The new IMR platform was launched in early July 2009. Xchanging, together with the London Market, has built and implemented the upgraded IMR to cope with the expected increase in volumes through to 2012 and to deliver significant improvements to the service. This is expected to generate additional revenues over the next four years. In claims processing, we have successfully concluded discussions on the future for claims processing with the London Insurance Market. We have also made significant improvements in premium processing time for underwriters through electronification and global balancing of resources within Xchanging. For instance, processing time for "query free" submissions has improved by 35%.
Our Hosting business continues to grow strongly reaping benefits from significant investments made in the past few years. In Business Support, we have signed a service contract with CapGemini to provide UK immigration processing and compliance.
Continental Europe
During the period we announced our agreement to acquire the FondsService Bank (FSB) business unit for a total consideration of €21.4 million (£19.1 million). FSB is the investment account administration services business unit of DAB bank AG and had revenues of over €40 million in 2008. The acquisition will maximise scale benefits through the consolidation of over 460,000 accounts onto our modern, low cost platform in Hof, Germany. The acquisition will also strengthen Xchanging's market position as a high capacity, independent provider of retail investment account management services in Germany. The acquisition is expected to complete in early 2010.
In Xchanging Transaction Bank, we have completed the first phase of the implementation of systems and processes relating to the German withholding tax law (Abgeltungssteuer). This has led to an increase in the scope of services delivered to our customers.
Asia Pacific
In Australia, we were appointed to manage the Workers Compensation claims for the Melbourne Health Network, incorporating the Royal Melbourne Hospital. This is the largest health network in the State of Victoria with 8,500 employees. Xchanging will now handle over 50% of the health market in the State of Victoria.
Americas
In the first six months, we have secured over ten new contracts in the US BPO business with c.$9 million aggregate contract value. We have also been very successful in renewing our contracts, achieving a 100% contract renewal rate. To date, we have renewed contracts with an expected total contract value of c.$65 million. At the same time, wherever possible, we have been successful in improving the underlying contract terms.
In Insurance Software, we signed an enterprise licence agreement as well as associated implementation services with QBE. QBE have agreed to take the first 'front-office' modules of our flagship .NET insurance application platform (XIAP) and have options on the remaining modules as these are developed.
We have also achieved several renewals in IT outsourcing including contracts with DHL and the Singaporean Government.
Global Procurement
During the period we signed a £825 million, five year Procurement Outsourcing contract with Alexander Mann Solutions (AMS), the leading global Recruitment Process Outsourcing provider. This is the largest Procurement Outsourcing contract in Xchanging's history and one of the largest of its kind in the industry. Under the contract Xchanging will manage indirect spend on behalf of AMS across the UK, Germany and Denmark. Xchanging will also provide fully managed global procure-to-pay services including transaction processing and systems and order management. Services under the contract started in July 2009.
Adding new platforms
Having taken operational control on 1 January 2009, the acquisition of Cambridge completed on 9 April 2009. The strategic rationale of the acquisition of Cambridge is as valid today as it was when we decided to buy the business 12 months ago. Cambridge provides us with new claims processing platforms in the US and Australia, and has also given us scale in India and an enhanced global IT capability. Cambridge also brings a diverse customer list with over 500 new customers. We are currently pursuing opportunities with a number of these.
We are pleased with the progress of the Cambridge integration which is running on schedule. Implementation teams are on the ground in the US, Australia and India. We have also strengthened the management teams, particularly in the US and Australia.
The restructuring of the US BPO business has gone according to plan and is now complete. The key achievements include:
45 sites consolidated into seven regional centres of excellence and a focused group of client/regulatory specific offices
filled 170 positions in the consolidated offices with a net reduction of 120 positions
successfully transferred over 40,000 files
moved over 100 people into a flagship Xchanging Head Office and processing centre in Chicago
Becoming the lean processor
We have continued our emphasis on standardising production and using technology to drive profitability across our businesses. Specifically, we are driving lean processing across the group through:
leveraging our newly acquired IT capabilities in India to reduce external spend
continuing the offshoring and nearshoring of labour-intensive work
applying automated solutions for capacity management and workflow
We continue to seek to reduce the number of processing centres we operate from with the aim of concentrating production in centres with in excess of 1,000 employees. We have selected the location for our flagship US processing centre and preparations are underway to commission this in H1 2010. We are also looking to expand our operations in India by moving work to Tier 3/4 cities that offer lower costs such as Shimoga.
Financial Review
Group Key Performance Indicators
The Group's KPIs have historically been 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, the add backs have included the IFRS 2 share based payment charges in relation to share and share option awards (H1 2009, £1.3 million; H1 2008, £1.0 million).
Over the last few years, the market has increasingly moved towards including IFRS 2 charges in presenting and analysing underlying business performance. Therefore, management believes it is appropriate to adopt this approach and to reflect this charge in its KPIs. Correspondingly, management believes that it is appropriate to focus on basic Earnings per Share so as not to double count the impact of share based payments. Historical comparatives have been recalculated for presentation in these financial statements.
The Group's KPIs are detailed below:
|
6 months ended 30 June 2009 |
6 months ended 30 June 2008 |
Increase |
|
|
Revenue |
£367.1m |
£266.8m |
38% |
|
Xchanging's share of underlying operating profit (XEBIT) (2) |
£20.3m |
£14.3m |
42% |
|
XEBIT margin |
5.5% |
5.4% |
+15 basis points |
|
Xchanging's share of underlying profit after tax (3) |
£14.6m |
£11.7m |
25% |
|
Underlying EPS - basic |
6.2p |
5.4p |
14% |
|
Cash generated from operations (pre-cash exceptionals) |
£33.0m |
£34.2m |
|
|
Cash conversion (pre-cash exceptionals) |
130% |
177% |
Revenue growth
Revenue for the six months ended 30 June 2009 was £367.1 million, an increase of 37.6% over the same period last year (H1 2008: £266.8 million), of which 29% (£76.8 million) relates to revenues acquired with the consolidation of the Cambridge Group in 2009. Organic growth was 8.8% of which 4.7% (£12.5 million) was as a result of favourable movements in our major trading currencies, in particular the Euro. Organic growth was driven in the UK region by revenues earned on the Insurance Market Repository (IMR) in 2009 and contracts won in the second half of 2008 (CooperGay) and early 2009 (Aon Benfield). There was also growth in services in our German securities processing business but this was offset by lower volumes of activity 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 at the half year in the light of the economic climate and incorporating the Cambridge business.
On this basis visible revenue for the year, at the half year, was £667.2 million which included £131.4 million relating to the acquired Cambridge business (H1 2008: £492.4 million).
Profit growth
Underlying operating profit (EBIT) grew 38.4% to £25.3 million (H1 2008: £18.3 million) representing an operating margin of 6.9% (H1 2008: 6.9%). Statutory operating profit declined 51.5% to £8.7 million (H1 2008: £18.0 million) after recognising exceptional items of £12.1 million (H1 2008: Nil) in relation to the integration of Cambridge.
XEBIT has grown 41.5% to £20.3 million (H1 2008: £14.3 million). This represents an XEBIT operating margin of 5.5% (H1 2008: 5.4%).
Xchanging's share of underlying profit after tax grew 24.8% to £14.6 million (H1 2008: £11.7 million). This represents a margin of 4.0% (H1 2008: 4.4%). Growth in profit after tax was substantially lower than growth in operating profit due to the adverse movement in finance expense compared with the previous year.
Margins
XEBIT margins have increased by 15 basis points to 5.5% (H1 2008: 5.4%). Operating margins have improved in the UK Region due to revenue growth (the signing of the CooperGay and Benfield contracts), the benefits of the UK consolidation and improvements in productivity. These positive drivers of margin have been offset by the lower margin of the acquired Cambridge business (4.2%), together with margin falls in Continental Europe and Global Procurement.
Exceptional costs
The Group posted exceptional charges of £12.1 million during the period (H1 2008: Nil), associated with the integration of Cambridge (see note 4 in the notes to this half year report). The majority of this was associated with the restructuring of the US BPO business, with 45 sites being reduced to 16 principal offices in the first half of the year.
The table below details the adjustments to operating profit to determine XEBIT:
|
XEBIT |
6 months ended 30 June 2009 |
6 months ended 30 June 2008 |
|
|
£m |
£m |
||
|
XEBIT |
20.3 |
14.3 |
|
|
Underlying profit after taxation attributable to minority interests |
5.0 |
4.0 |
|
|
Underlying operating profit |
25.3 |
18.3 |
|
|
Less: |
|||
|
Exceptional items |
(12.1) |
0.0 |
|
|
Amortisation of intangible assets that were previously unrecognised by an entity acquired by the Group |
(4.5) |
(0.3) |
|
|
Statutory operating profit |
8.7 |
18.0 |
|
Earnings Per Share
When considering Earnings Per Share, the Group considers it appropriate to use Xchanging's share of underlying profit after tax as described above, as it represents the underlying performance of the business. Further, management believes that it is appropriate to focus 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 after tax.
|
Basic / Diluted Earnings Per Share |
6 months ended 30 June 2009 |
6 months ended 30 June 2008 |
|
£m |
£m |
|
|
Xchanging share of underlying profit after tax |
14.6 |
11.7 |
|
Weighted average number of shares in issue |
235.0 |
215.1 |
|
Underlying basic Earnings Per Share (pence) |
6.2 |
5.4 |
|
Xchanging share of underlying profit after tax |
14.6 |
11.7 |
|
Weighted average diluted number of shares |
240.0 |
223.7 |
|
Underlying diluted Earnings Per Share (pence) |
6.1 |
5.2 |
Basic Earnings Per Share have grown 14.4% to 6.2 (H1 2008: 5.4). The improvement in Earnings Per Share has been driven by growth of 24.8% in Xchanging's share of underlying profit after tax. At basic EPS level, this growth has been diluted by an increase in the average number of share in issue by 9.2% to 234.9 million shares (H1 2008: 215.1 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 0.7 million shares (0.2 million on weighted average basis).
Finance cost
Net finance cost (pre exceptional items, imputed interest on put options and imputed interest on employee loans) increased to £1.5 million (H1 2008: £2.8 million finance income).
Finance costs include interest charges incurred in 2009 relating to the Group facility (this facility was not in place at the 2008 half year). In addition, finance costs of £1.5 million have been incurred by the acquired Cambridge entities in 2009 relating to the servicing of several debt facilities and loans held primarily in the US and India.
Finance income has decreased across the Group due to the lower interest rates earned in the current economic environment on cash balances held with commercial banks.
Taxation
The Group's effective tax rate on Xchanging's share of underlying operating profit before tax was 26.7% (H1 2008: 30.1%). The effective tax rate improved as a result of the utilisation of tax losses in the central services entity.
The Group's statutory effective tax rate, before exceptional items, was 25.6% for the period (H1 2008: 29.8%).
Segmental performance
Xchanging has changed its financial reporting structure from a business line to a regional basis (UK, Continental Europe, Americas and Asia Pacific) plus Global Procurement. This is to reflect the way we run the business globally. Segmental performance, based on the new regional structure is discussed below:
Continental Europe
Revenue in the Continental Europe region grew by 13.3% to £81.9 million (H1 2008: £72.3 million). Underlying revenue was flat with reported growth driven by the movement in foreign exchange rates between the periods.
For the underlying revenues, 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 4.7% to £5.8 million (H1 2008: £6.1 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 7.1% (H1 2008: 8.5%).
UK
Revenue in the UK Region increased by 12.5% to £112.4 million (H1 2008: £99.9 million). Contracts won in the second half of 2008 (CooperGay) and early in 2009 (Aon Benfield) in XBS have had a favourable impact on revenue. Insurance Market Repository (IMR) has also contributed to this growth.
XEBIT for the period has increased by 50.5% to £14.3 million (H1 2008: £9.5 million) resulting from new and incremental business and through the scale benefits achieved from the new regional structure.
The XEBIT margin has increased for the period to 12.8% (H1 2008: 9.5%) primarily due to the increased contribution to XEBIT from XBS, productivity improvement and leveraging management overhead across the enlarged business resulting from the restructure into regions.
Americas
The Americas Region revenue of £76.7 million includes £61.1 million relating to the acquired Cambridge business and £15.6 million (H1 2008: £15.0 million) relating to the existing Insurance Software business. The Americas revenue for the period included £1.6 million of revenue from the contract for services with Compagnie Pour Assistance Technique et Investissements S.A. announced on 12 January 2009.
XEBIT of £2.3 million includes an operating profit of £0.2 million from the Cambridge US BPO and IT businesses with the existing Insurance Software XEBIT growing by 19.8% to £2.0 million (H1 2008: £1.7 million) due to improved revenue mix.
The XEBIT margin for the region has dropped to 2.9% (H1 2008: 11.2%) primarily due to the historic underperformance of the acquired US BPO business which is currently showing a loss for the period, together with lower margins in the acquired IT business. Following the restructuring of the US BPO business, we expect margins to turn positive in the second half of the year. The underlying operating margin for the period has decreased to 3.0% (H1 2008: 11.2%).
Asia Pacific
Revenue in the Asia Pacific region of £23.2 million includes £20.0 million of revenue from the Cambridge Australian and Indian BPO businesses and £3.2 million (H1 2008: £ 2.9 million) of revenue related to the Business Processing Services (BPS) unit which has grown 12.2% due to increased offshoring by the Insurance and Continental Europe businesses.
XEBIT of £3.7 million includes £3.2 million of profit from the acquired Cambridge business and £0.5 million (H1 2008: £0.4 million) from the BPS business.
The XEBIT margin for the region has increased to 16.0% (H1 2008: 12.8%) as a result of the acquired Australian BPO and Indian BPO businesses which operate at higher margins. The adjusted operating margin for the period has increased to 20.2% (H1 2008: 12.8%).
Global Procurement
Global Procurement revenue has increased by 3.4% to £88.0 million (H1 2008: £85.1 million) due to growth in revenue with BAE Systems, partially offset by declines in some volume-related revenues.
XEBIT has decreased by 26.0% to £4.2 million (H1 2008: £5.7 million). Margins have been adversely impacted by a mix change associated with the revenue profile of the business and reduced Business Support revenues from our operations in France. Global Procurement's XEBIT was further impacted by costs incurred in expanding the business into the US and Australia.
The XEBIT margin has decreased to 4.8% in the period (H1 2008: 6.7%) reflecting the impact of the pressure on margin described above. There are no minority interests within the segment hence XEBIT is the same as adjusted operating profit.
Corporate
Corporate costs have increased for the period by 11.1% to £10.1 million (H1 2008: £9.1 million). This is primarily due to additional resources required to support the enlarged Group post the acquisition of Cambridge and the inclusion of Cambridge corporate resources. Corporate costs as a percentage of revenue reduced from 3.4% to 2.7% due to tight management of costs and the benefits of scale..
Operating cash flow
Cash flows from operating activities (pre exceptional cash items) decreased by 4% to £33.0 million (H1 2008: £34.2 million).
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 decreased to 130% (pre cash exceptional items) (H1 2008: 177%). The drop in cash conversion is attributable to absorption of working capital, particularly in the acquired Cambridge businesses. This is predominantly due to the current economic climate with an increase in debtor days. In addition, in the US BPO business there are a number of cash based provisions recognised in the acquisition opening balance sheet.
£7 million of the £12 million exceptional items were cash expenses.
Capital expenditure, depreciation and amortisation
The Group invested £16.2 million (H1 2008: £12.8 million) on tangible and intangible assets during the period, representing 4.4% (H1 2008: 4.8%) of revenue. The investment has mainly been in the Insurance business. We have continued to invest in developing products, technology and infrastructure for the electronic handling of policies and claims in the London Insurance market. £1.7 million (10.5%) of the total capital expenditure for the period related to the integration of Cambridge including premises fit out, IT infrastructure, and implementation.
The depreciation and amortisation charges of £13.6 million (H1 2008: £8.2 million) represented 3.6% (H1 2008: 3.1%) of revenue.
The Group capitalised £1.2 million (H1 2008: £0.2 million) as pre-contract costs, which are disclosed as trade and other receivables in the half year report. Costs directly attributable to winning a contract are capitalised 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 £0.7 million (H1 2008: £0.6 million).
Cash
Cash held by the Group at the period end was £63.4 million (H1 2008: £106.1 million), of which £21.6 million (H1 2008: £59.3 million) was centrally controlled (excluding cash held by Enterprise Partnerships). As at 30 June 2009, the Group had a £90 million debt facility of which £40.0 million was available to draw down. On 31 July 2009, the Group completed all necessary steps to syndicate its debt facility and increased the total amount to £110 million. The debt facility expires in October 2012.
Group risk factors
As with all businesses, the Group is exposed to certain risks, which could have a material impact on the Group's long-term performance and could cause actual results to differ materially from forecast and historic results.
Apart from the risk associated with the integration of Cambridge as outlined below, the principal risks and uncertainties facing the Group have not changed from those set out in the Annual Report and Accounts 2008. These include the risks associated with attracting new customers, implementation of large contracts, continuation of efficient processing, exposure to complex and technical contractual terms, successful retention of key employees, continuity and security of IT systems, and regulatory and legislative changes. For a full discussion of the risks to our future business performance, please refer to page 29 of our Annual Report and Accounts 2008 a copy of which can be found on www.xchanging.com.
Poor re-alignment of Cambridge could impact customer service levels, profitability and our reputation. Management have undertaken several actions to mitigate this risk including:
application of the standard approach we apply to the implementation of large new partnerships
using experienced employees with strong project, change and people management skills to ensure continuity of service and retention of key employees
rigorous monitoring of Cambridge integration through the monthly Xchanging Performance Committee.
Presentational change to the income statement
The Group has made a presentational change to the income statement now presenting it in a three-column format. Exceptional items, amortisation of intangible assets previously unrecognised by an acquired entity and imputed interest on put options are presented separately in the middle column of the income statement. This allows a better understanding of the elements of financial performance in the period. The left hand column of the income statement therefore represents the underlying performance of the business in line with the Group's KPIs.
XCHANGING PLC
Consolidated income statement
for the 6 months ended 30 June 2009
|
Unaudited |
||||||||
|
6 months ended 30 June 2009 |
6 months ended 30 June 2008 |
|||||||
|
|
Underlying |
Exceptional items, amortisation of intangible assets previously unrecognised by an acquired entity and imputed interest on put options |
Total |
Underlying |
Exceptional items, amortisation of intangible assets previously unrecognised by an acquired entity and imputed interest on put options |
Total |
||
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||
|
Revenue |
3 |
367,065 |
- |
367,065 |
266,822 |
- |
266,822 |
|
|
Cost of sales |
4 |
(331,673) |
(16,591) |
(348,264) |
(239,873) |
(266) |
(240,139) |
|
|
Gross profit |
35,392 |
(16,591) |
18,801 |
26,949 |
(266) |
26,683 |
||
|
Administrative expenses |
(10,060) |
- |
(10,060) |
(8,645) |
- |
(8,645) |
||
|
Operating profit |
3 |
25,332 |
(16,591) |
8,741 |
18,304 |
(266) |
18,038 |
|
|
Finance costs |
(6,405) |
(632) |
(7,037) |
(4,443) |
(313) |
(4,756) |
||
|
Finance income |
4,897 |
- |
4,897 |
7,260 |
199 |
7,459 |
||
|
Profit before taxation |
23,824 |
(17,223) |
6,601 |
21,121 |
(380) |
20,741 |
||
|
Taxation |
(6,098) |
5,524 |
(574) |
(6,297) |
113 |
(6,184) |
||
|
Profit for the period |
3 |
17,726 |
(11,699) |
6,027 |
14,824 |
(267) |
14,557 |
|
|
Attributable to: |
||||||||
|
- equity holders of the Company |
14,582 |
(9,316) |
5,266 |
11,687 |
(267) |
11,420 |
||
|
- minority interests |
3,144 |
(2,383) |
761 |
3,137 |
- |
3,137 |
||
|
17,726 |
(11,699) |
6,027 |
14,824 |
(267) |
14,557 |
|||
|
Earnings per share (expressed in pence per share) |
||||||||
|
- basic |
5 |
6.21 |
2.24 |
5.43 |
5.31 |
|||
|
- diluted |
5 |
6.08 |
2.19 |
5.22 |
5.10 |
|||
|
Notes 1 to 12 form an integral part of this condensed consolidated half year report |
||||||||
XCHANGING PLC
Consolidated statement of comprehensive income
for the 6 months ended 30 June 2009
|
Unaudited |
|||
|
6 months ended 30 June 2009 |
6 months ended 30 June 2008 |
||
|
Notes |
£'000 |
£'000 |
|
|
Actuarial (losses)/gains arising from defined benefit pension schemes |
(3,440) |
950 |
|
|
Movement on deferred tax relating to defined benefit pension schemes |
823 |
(331) |
|
|
Revaluation of available-for-sale financial assets |
(919) |
(2,075) |
|
|
Transfer of foreign exchange movement on hedged item to cost of acquisition |
(3,208) |
- |
|
|
Deferred tax on revaluation of available-for-sale financial assets |
9 |
105 |
|
|
Currency translation differences |
(8,610) |
2,132 |
|
|
Other comprehensive (loss)/income, net of tax |
(15,345) |
781 |
|
|
Profit for the period |
3 |
6,027 |
14,557 |
|
Total comprehensive (loss)/income for the period |
(9,318) |
15,338 |
|
|
Attributable to: |
|||
|
- equity holders of the Company |
(8,380) |
12,587 |
|
|
- minority interests |
(938) |
2,751 |
|
|
(9,318) |
15,338 |
||
|
Notes 1 to 12 form an integral part of this condensed consolidated half year report |
|||
XCHANGING PLC
Consolidated statement of changes in equity
for the 6 months ended 30 June 2009
|
Unaudited |
|||||||||
|
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 period |
- |
- |
- |
- |
1,172 |
11,415 |
12,587 |
2,751 |
15,338 |
|
Transactions with owners: |
|||||||||
|
Premium on issue of warrant |
- |
- |
- |
- |
- |
124 |
124 |
- |
124 |
|
Share-based payments |
|||||||||
|
- share options |
- |
- |
- |
- |
- |
923 |
923 |
- |
923 |
|
Deferred and current income tax on share options |
- |
- |
- |
- |
- |
281 |
281 |
- |
281 |
|
Shares issued |
|||||||||
|
- employee share-based payments |
49 |
695 |
- |
- |
- |
- |
744 |
- |
744 |
|
Dividends payable |
- |
- |
- |
- |
- |
(4,297) |
(4,297) |
(3,930) |
(8,227) |
|
At 30 June 2008 |
10,789 |
74,410 |
409,672 |
(312,238) |
12,204 |
22,107 |
216,944 |
14,157 |
231,101 |
|
At 1 January 2009 |
10,973 |
76,647 |
409,672 |
(312,238) |
16,492 |
41,042 |
242,588 |
15,792 |
258,380 |
|
Total comprehensive income for the period |
- |
- |
- |
- |
(13,646) |
5,266 |
(8,380) |
(938) |
(9,318) |
|
Transactions with owners: |
|||||||||
|
Arising on acquisition |
- |
- |
- |
- |
- |
- |
- |
(17,183) |
(17,183) |
|
Share-based payments |
|||||||||
|
- share options |
- |
- |
- |
- |
- |
1,137 |
1,137 |
- |
1,137 |
|
Deferred and current income tax on share options |
- |
- |
- |
- |
- |
(335) |
(335) |
- |
(335) |
|
Shares issued |
|||||||||
|
- in respect of Cambridge acquisition (net of issue costs) |
762 |
27,355 |
- |
- |
7,779 |
- |
35,896 |
- |
35,896 |
|
- employee share-based payments |
34 |
620 |
- |
- |
- |
(31) |
623 |
- |
623 |
|
Dividends payable |
- |
- |
- |
- |
- |
(5,487) |
(5,487) |
(4,296) |
(9,783) |
|
At 30 June 2009 |
11,769 |
104,622 |
409,672 |
(312,238) |
10,625 |
41,592 |
266,042 |
(6,625) |
259,417 |
Movements in the period 1 January 2008 to 30 June 2008 and in the period 1 January 2009 to 30 June 2009 are unaudited.
XCHANGING PLC
Consolidated balance sheet
as at 30 June 2009
|
Unaudited |
Audited |
||
|
30 June 2009 |
31 December 2008 |
||
|
Notes |
£'000 |
£'000 |
|
|
Assets |
|
||
|
Non-current assets |
|||
|
Goodwill |
7 |
228,441 |
95,558 |
|
Intangible assets |
7 |
67,100 |
58,478 |
|
Property, plant and equipment |
7 |
35,345 |
24,486 |
|
Available-for-sale financial assets |
25,368 |
26,782 |
|
|
Trade and other receivables |
5,736 |
5,586 |
|
|
Retirement benefit assets |
304 |
407 |
|
|
Deferred income tax assets |
24,586 |
20,043 |
|
|
Total non-current assets |
386,880 |
231,340 |
|
|
Current assets |
|||
|
Trade and other receivables |
137,502 |
112,451 |
|
|
Cash and cash equivalents |
63,390 |
117,798 |
|
|
Total current assets |
200,892 |
230,249 |
|
|
Liabilities |
|||
|
Current liabilities |
|||
|
Trade and other payables |
(169,504) |
(117,598) |
|
|
Current income tax liabilities |
(7,603) |
(4,443) |
|
|
Financial liabilities |
|||
|
- borrowings |
8 |
(5,736) |
(276) |
|
- other liabilities |
8 |
(850) |
(974) |
|
Provisions |
9 |
(7,356) |
(6,617) |
|
Net current assets |
9,843 |
100,341 |
|
|
Total assets less current liabilities |
396,723 |
331,681 |
|
|
Non-current liabilities |
|||
|
Trade and other payables |
(12,571) |
(13,215) |
|
|
Financial liabilities |
|||
|
- borrowings |
8 |
(40,406) |
- |
|
- other liabilities |
8 |
(21,115) |
(23,145) |
|
Deferred income tax liabilities |
(13,220) |
(5,666) |
|
|
Retirement benefit obligations |
(22,564) |
(18,587) |
|
|
Provisions |
9 |
(27,430) |
(12,688) |
|
Net assets |
259,417 |
258,380 |
|
|
Shareholders' equity |
|||
|
Ordinary shares |
11,769 |
10,973 |
|
|
Share premium |
104,622 |
76,647 |
|
|
Merger reserve |
409,672 |
409,672 |
|
|
Reverse acquisition reserve |
(312,238) |
(312,238) |
|
|
Other reserves |
10,625 |
16,492 |
|
|
Retained earnings |
41,592 |
41,042 |
|
|
Total shareholders' equity |
266,042 |
242,588 |
|
|
Minority interest in equity |
(6,625) |
15,792 |
|
|
Total equity |
259,417 |
258,380 |
|
|
Notes 1 to 12 form an integral part of this condensed consolidated half year report. |
|||
XCHANGING PLC
Consolidated cash flow statement
for the 6 months ended 30 June 2009
|
Unaudited |
||
|
6 months ended 30 June 2009 |
6 months ended 30 June 2008 |
|
|
£'000 |
£'000 |
|
|
Cash flows from operating activities |
||
|
Cash generated from operations |
26,038 |
34,212 |
|
Income tax paid |
(5,791) |
(2,561) |
|
Net cash from operating activities |
20,247 |
31,651 |
|
Cash flows from investing activities |
||
|
Acquisition expenses |
(3,512) |
(391) |
|
Acquisition cost of subsidiaries |
(48,803) |
(5,944) |
|
Cash and cash equivalents acquired with subsidiaries |
3,946 |
627 |
|
Repayment of put option |
(894) |
- |
|
Purchase of available-for-sale financial assets |
(454) |
- |
|
Purchase of property, plant and equipment |
(9,981) |
(4,585) |
|
Purchase of intangible assets |
(5,398) |
(8,238) |
|
Pre-contract expenditure |
(1,250) |
(235) |
|
Proceeds from sale of property, plant and equipment |
73 |
207 |
|
Interest received |
1,409 |
3,391 |
|
Net cash used in investing activities |
(64,864) |
(15,168) |
|
Cash flows from financing activities |
||
|
Proceeds from issue of shares |
636 |
744 |
|
Proceeds from borrowings |
40,259 |
- |
|
Repayment of borrowings |
(30,961) |
- |
|
Proceeds from issue of warrants in subsidiary |
- |
124 |
|
Repayment of finance lease creditor |
(654) |
- |
|
Interest paid |
(1,910) |
(424) |
|
Dividends paid to minority interests |
(4,296) |
(3,930) |
|
Dividends paid to equity shareholders |
(5,487) |
(4,297) |
|
Net cash (used in)/from financing activities |
(2,413) |
(7,783) |
|
Effects of exchange rate adjustments |
(7,378) |
(972) |
|
Net increase in cash and cash equivalents |
(54,408) |
7,728 |
|
Cash and cash equivalents at 1 January |
117,798 |
98,366 |
|
Cash and cash equivalents at 30 June |
63,390 |
106,094 |
|
Notes 1 to 12 form an integral part of this condensed consolidated half year report. |
||
XCHANGING PLC
Notes to the half year report
for the 6 months ended 30 June 2009
1 Basis of preparation
General information
Xchanging plc is a limited liability company incorporated and domiciled in the UK. The address of its registered office is 13 Hanover Square, London, W1S 1HN. The Company's ordinary shares are traded on the London Stock Exchange.
Basis of preparation
This condensed consolidated half year report for the half year ended 30 June 2009 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority, and with IAS 34, "Interim financial reporting" as adopted by the European Union. This condensed consolidated half year financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2008, which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
Accounting policies
Except as described below, the accounting policies adopted in the preparation of this condensed consolidated half year report are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2008. The accounting policies are drawn up in accordance with International Accounting Standards (IAS) and IFRS as endorsed by the European Union.
The Directors, having carried out a review of the Group's 2008 financial statements, have made a presentational change to the income statement in this half year report. The Group has opted to present its income statement for the six months ended 30 June 2009 and 30 June 2008 in a three-column format. Such presentation allows exceptional items, amortisation of intangible assets previously unrecognised by an acquired entity, imputed interest on put options and related taxation to be presented separately in the middle column of the income statement. The various line items of the income statement are therefore shown both before and after these items in the first and last columns, respectively. This allows shareholders to understand better the elements of financial performance in the current period, so as to facilitate comparison with the prior periods.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning on 1 January 2009 and impact the consolidated half-yearly financial information as described:
IAS 1 (Revised), "Presentation of financial statements": The revised standard prohibits the presentation of items of income and expenses (that is 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity. All 'non-owner changes in equity' are required to be shown in a performance statement.
Under the revised standard, entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). The Group has elected to present two statements: an income statement and a statement of comprehensive income.
IFRS 8, "Operating segments": IFRS 8 replaces IAS 14, "Segment reporting". It requires a 'management approach' to be adopted, under which segment information is presented on the same basis as for internal reporting purposes. This new standard, combined with the management organisational and reporting restructuring exercise undertaken following the acquisition of Cambridge Solutions Limited, has resulted in a new segmental format being presented by the Group.
The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning on 1 January 2009, but are not currently relevant to the Group or have not had a material impact on the Group:
IFRS 1 (Revised), "First-time adoption of IFRSs"
IAS 23 (Revised), "Borrowing costs"
Amendments to IFRS 1 and IAS 27, "Cost of an investment in a subsidiary, jointly controlled entity or an associate"
Amendment to IFRS 2, "Vesting conditions and cancellations"
Amendment to IFRS 7, "Improving disclosures about financial instruments"
Amendments to IAS 32 and IAS 1, "Puttable financial instruments and obligations arising on liquidation"
Amendment to IAS 39, "Eligible hedged items"
Annual improvements to IFRS
IFRIC 14, "IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction"
IFRIC 15, "Agreements for the construction of real estate"
IFRIC 16, "Hedge of a net investment in a foreign operation"
The following new standards, amendments to standards or interpretations have been issued, but are not effective for the financial year beginning 1 January 2009 and have not been early adopted:
IFRS 3 (Revised), "Business combinations"
IAS 27 (Revised), "Consolidated and separate financial statements"
Amendment to IFRS 5, "Non-current assets held for sale and discontinued operations"
IFRIC 17, "Distributions of non-cash assets to owners"
IFRIC 18, "Transfers of assets from customers"
The directors anticipate that the future adoption of those standards, interpretations and amendments listed above will not have a material impact on the Group's financial statements.
2 Financial information
The financial information included in this condensed consolidated half year report does not constitute full financial statements within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2008 were approved by the Board for issue on 2 March 2009 and delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 237 of the Companies Act 1985.
3 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 current 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 the UK, the Americas, Continental Europe, Asia Pacific, Global Procurement and Central. A brief description of each segment is as follows:
UK is a cross-industry sector providing insurance BPO services, human resources, finance and accounting, and technology.
Services provided in the Americas segment comprise 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 Australian workers' compensation claims processing services business.
Global Procurement is a cross-industry sector in which the Group provides procurement services to a range of customers across geographical borders.
Central provides the infrastructure, resources and investment to sustain and grow the Group, including sales and commercial, performance management, implementation and business management functions.
Management uses Xchanging's share of underlying operating profit/(loss) (XEBIT) as a measure of segment result. XEBIT represents underlying operating profit/(loss) attributable to equity holders of the Group. Underlying operating profit/(loss) 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 the imputed interest recognised in respect of put options issued to minority interests. 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 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.
The segment information for the period ended 30 June 2009 is as follows:
|
Unaudited |
|||||||
|
UK |
Americas |
Continental Europe |
Asia Pacific |
Global Procure-ment |
Central |
Total |
|
|
Six months ended 30 June 2009 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Revenue |
112,413 |
76,6671 |
81,859 |
23,223 |
88,011 |
146 |
382,319 |
|
- from external customers |
108,079 |
74,166 |
81,859 |
15,683 |
87,132 |
146 |
367,065 |
|
- inter segment |
4,334 |
2,501 |
- |
7,540 |
879 |
- |
15,254 |
|
Xchanging's share of underlying operating profit/(loss) (XEBIT) |
14,339 |
2,252 |
5,834 |
3,714 |
4,202 |
(10,071) |
20,270 |
|
XEBIT margin |
12.8% |
2.9% |
7.1% |
16.0% |
4.8% |
5.5% |
|
|
Underlying operating profit/(loss) |
18,256 |
2,277 |
5,981 |
4,687 |
4,202 |
(10,071) |
25,332 |
|
Underlying operating profit margin |
16.2% |
3.0% |
7.3% |
20.2% |
4.8% |
6.9% |
|
|
Adjustment of certain non-cash items: |
|||||||
|
- amortisation of intangible assets previously unrecognised by an acquired entity |
(80) |
(3,389) |
(187) |
(769) |
(86) |
(2) |
(4,513) |
|
Operating profit/(loss) before central costs and exceptional operating costs |
18,176 |
(1,112) |
5,794 |
3,918 |
4,116 |
(10,073) |
20,819 |
|
Allocation of central costs: |
|||||||
|
- investment in Enterprise Partnerships |
(12) |
- |
- |
- |
- |
12 |
- |
|
- depreciation and amortisation |
(748) |
- |
(265) |
- |
(103) |
1,116 |
- |
|
- other |
173 |
- |
(95) |
- |
(56) |
(22) |
- |
|
Operating profit/(loss) before exceptional operating costs |
17,589 |
(1,112) |
5,434 |
3,918 |
3,957 |
(8,967) |
20,819 |
|
Exceptional operating costs |
(12,078) |
||||||
|
Operating profit |
8,741 |
||||||
|
Finance costs |
(7,037) |
||||||
|
Finance income |
4,897 |
||||||
|
Taxation |
(574) |
||||||
|
Profit for the period |
6,027 |
||||||
|
1Americas external revenue for the period end 30 June 2009 includes £1,563,000 of revenue from a contract entered into during the period by Cambridge Integrated Services Group Inc., a wholly owned subsidiary of the Group, to provide consulting, business development and procurement services over the next two years to Compagnie Pour Assistance Technique et Investissements S.A. ('CATISA'). The contract has a value of up to $15million over this period. This is disclosed as a related party transaction in note 12. The segment information for the period ended 30 June 2008 is as follows: |
|||||||
|
Unaudited |
|||||||
|
UK |
Americas |
Continental Europe |
Asia Pacific |
Global Procure-ment |
Central |
Total |
|
|
Six months ended 30 June 2008 (restated) |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Revenue |
99,906 |
14,999 |
72,250 |
2,873 |
85,086 |
342 |
275,456 |
|
- from external customers |
95,929 |
13,441 |
72,222 |
- |
84,888 |
342 |
266,822 |
|
- inter segment |
3,977 |
1,558 |
28 |
2,873 |
198 |
- |
8,634 |
|
Xchanging's share of underlying operating profit/(loss) (XEBIT) |
9,528 |
1,684 |
6,124 |
369 |
5,681 |
(9,062) |
14,324 |
|
XEBIT margin |
9.5% |
11.2% |
8.5% |
12.8% |
6.7% |
5.4% |
|
|
Underlying operating profit/(loss) |
13,508 |
1,684 |
6,124 |
369 |
5,681 |
(9,062) |
18,304 |
|
Underlying operating profit margin |
13.5% |
11.2% |
8.5% |
12.8% |
6.7% |
6.9% |
|
|
Adjustment of certain non-cash items: |
|||||||
|
- amortisation of intangible assets previously unrecognised by an acquired entity |
(119) |
(44) |
- |
- |
(103) |
- |
(266) |
|
Operating profit/(loss) before central costs and exceptional operating costs |
13,389 |
1,640 |
6,124 |
369 |
5,578 |
(9,062) |
18,038 |
|
Allocation of central costs: |
|||||||
|
- investment in Enterprise Partnerships |
(24) |
- |
- |
- |
- |
24 |
- |
|
- depreciation and amortisation |
(681) |
- |
(264) |
- |
(153) |
1,098 |
- |
|
- other |
233 |
- |
(647) |
- |
(10) |
424 |
- |
|
Operating profit/(loss) before exceptional operating costs |
12,917 |
1,640 |
5,213 |
369 |
5,415 |
(7,516) |
18,038 |
|
Exceptional operating costs |
- |
||||||
|
Operating profit |
18,038 |
||||||
|
Finance costs |
(4,756) |
||||||
|
Finance income |
7,459 |
||||||
|
Taxation |
(6,184) |
||||||
|
Profit for the period |
14,557 |
||||||
4 Exceptional operating costs
|
Unaudited |
||
|
6 months ended 30 June 2009 |
6 months ended 30 June 2008 |
|
|
£'000 |
£'000 |
|
|
Exceptional operating costs included in cost of sales comprise the following: |
||
|
Cambridge acquisition and integration costs |
6,862 |
- |
|
Onerous lease provision |
4,406 |
- |
|
Impairment of assets |
810 |
- |
|
Total exceptional operating costs included in cost of sales |
12,078 |
- |
|
Amortisation of intangible assets previously unrecognised by an acquired entity |
4,513 |
266 |
|
Total |
16,591 |
266 |
The Cambridge acquisition and integration costs incurred during the period relate to specific costs incurred as a consequence of the acquisition of Cambridge Solutions Limited and its subsidiaries ('the Cambridge Group'). These costs were incurred in part to effect the acquisition, and in part as a result of the implementation of significant restructuring efforts to integrate the Cambridge Group 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, and the creation of a new centralised processing centre (due for completion in 2010). The charge consists of costs relating to the restructuring of the US BPO business of £2,896,000, severance pay of £1,390,000 and other costs associated with the management and implementation of the integration plan of £2,576,000.
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 provision created represents 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 above.
The amortisation of intangible assets previously unrecognised by an acquired entity relates to the annual amortisation charge associated with those intangible assets, primarily customer relationship assets, which have been recognised only as a result of an acquisition and have been identified in accordance with IFRS 3, "Business Combinations".
5 Earnings per share
Basic earnings per share are 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 dilutive potential 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.
|
Unaudited |
||||||||||
|
Earnings |
Weighted average number of shares |
Earnings per share |
||||||||
|
£'000 |
thousands |
pence |
||||||||
|
Basic earnings per share: |
||||||||||
|
- 30 June 2009 |
5,266 |
234,931 |
2.24 |
|||||||
|
- 30 June 2008 |
11,420 |
215,091 |
5.31 |
|||||||
|
Diluted earnings per share: |
|
|||||||||
|
- 30 June 2009 |
5,266 |
240,004 |
2.19 |
|||||||
|
- 30 June 2008 |
11,420 |
223,706 |
5.10 |
|||||||
|
The following reflects the share data used in the basic and dilutive earnings per share calculations: |
||||||||||
|
Weighted average number of shares: |
||||||||||
|
Unaudited |
||||||||||
|
6 months ended 30 June 2009 |
6 months ended 30 June 2008 |
|||||||||
|
thousands |
thousands |
|||||||||
|
Weighted average number of ordinary shares for basic and adjusted earnings per share |
234,931 |
215,091 |
||||||||
|
Dilutive potential ordinary shares: |
||||||||||
|
- employee share options |
3,716 |
7,963 |
||||||||
|
- awards under Performance Share Plan |
1,357 |
652 |
||||||||
|
Weighted average number of ordinary shares for dilutive earnings per share |
240,004 |
223,706 |
||||||||
|
Underlying basic and diluted earnings per share |
||||||||||
|
In addition to the above, an underlying earnings per share value is disclosed to provide a better understanding of the underlying trading results of the Group. This underlying value is in line with the KPIs as used to measure the Group's performance. |
||||||||||
|
Unaudited |
||||||||||
|
Earnings |
Weighted average number of shares |
Earnings per share |
||||||||
|
£'000 |
thousands |
pence |
||||||||
|
Underlying basic earnings per share: |
||||||||||
|
- 30 June 2009 |
14,582 |
234,931 |
6.21 |
|||||||
|
- 30 June 2008 |
11,687 |
215,091 |
5.43 |
|||||||
|
Underlying diluted earnings per share: |
||||||||||
|
- 30 June 2009 |
14,582 |
240,004 |
6.08 |
|||||||
|
- 30 June 2008 |
11,687 |
223,706 |
5.22 |
|||||||
|
The underlying earnings per share figures are calculated based on the Xchanging adjusted profit after tax (XPAT), divided by the basic and diluted weighted average number of shares as stated above. |
||||||||||
|
The XPAT is calculated as follows: |
||||||||||
|
Unaudited |
||||||||||
|
6 months ended 30 June 2009 |
6 months ended 30 June 2008 |
|||||||||
|
£'000 |
£'000 |
|||||||||
|
Net profit attributable to Xchanging equity holders |
5,266 |
11,420 |
||||||||
|
Exceptional items (net of tax) |
7,801 |
- |
||||||||
|
Amortisation of intangible assets previously unrecognised by an acquired entity (net of tax) |
3,380 |
186 |
||||||||
|
Imputed interest and fair value adjustments on put options (net of tax) |
518 |
223 |
||||||||
|
Imputed interest on employee loans through the Share Purchase Plan (net of tax) |
- |
(142) |
||||||||
|
Minority interest share in adjustments |
(2,383) |
- |
||||||||
|
Underlying net profit attributable to Xchanging plc equity holders |
14,582 |
11,687 |
||||||||
6 Dividends paid
A dividend relating to the year ended 31 December 2008, amounting to £5,487,000 (2007: £4,297,000), was paid on 29 May 2009, to members registered at the close of business on 27 March 2009.
7 Capital Expenditure
|
i) Intangible assets |
|||||
|
Goodwill |
Intangible assets |
Total |
|||
|
Note |
£'000 |
£'000 |
£'000 |
||
|
Opening net book amount at 1 January 2008 |
85,620 |
39,053 |
124,673 |
||
|
Acquisitions |
4,807 |
618 |
5,425 |
||
|
Additions |
- |
26,128 |
26,128 |
||
|
Revision of deferred contingent consideration on previous business combinations |
(420) |
- |
(420) |
||
|
Fair value adjustments relating to prior year business combinations |
2,514 |
(3,164) |
(650) |
||
|
Disposals |
- |
(341) |
(341) |
||
|
Amortisation and other movements (including exchange adjustments) |
3,037 |
(3,816) |
(779) |
||
|
Closing net book amount at 31 December 2008 |
95,558 |
58,478 |
154,036 |
||
|
Acquisitions |
10 |
147,110 |
21,216 |
168,326 |
|
|
Additions |
- |
6,209 |
6,209 |
||
|
Disposals |
- |
(4) |
(4) |
||
|
Amortisation and other movements (including exchange adjustments) |
(14,227) |
(18,799) |
(33,026) |
||
|
Closing net book amount at 30 June 2009 |
228,441 |
67,100 |
295,541 |
||
|
|
|||||
|
Movements for the period 1 January 2009 to 30 June 2009 are unaudited; movements in the period 1 January 2008 to 31 December 2008 are audited. Goodwill with an indefinite life is not subject to amortisation, but is tested annually for impairment at the year end, 31 December, or whenever there are indications of impairment. At 30 June 2009, there were no indications of impairment for goodwill with indefinite life. |
|||||
|
ii) Property, plant and equipment |
|||||
|
Note |
£'000 |
||||
|
Opening net book amount at 1 January 2008 |
16,444 |
||||
|
Acquisitions |
10 |
||||
|
Additions |
13,476 |
||||
|
Disposals |
(229) |
||||
|
Depreciation and other movements (including exchange adjustments) |
(5,215) |
||||
|
Closing net book amount at 31 December 2008 |
24,486 |
||||
|
Acquisitions |
10 |
8,511 |
|||
|
Additions |
9,981 |
||||
|
Disposals |
(68) |
||||
|
Depreciation and other movements (including exchange adjustments) |
(7,565) |
||||
|
Closing net book amount at 30 June 2009 |
35,345 |
||||
|
Movements for the period 1 January 2009 to 30 June 2009 are unaudited; movements in the period 1 January 2008 to 31 December 2008 are audited. |
|||||
8 Financial liabilities
|
Unaudited |
Audited |
|
|
30 June 2009 |
31 December 2008 |
|
|
£'000 |
£'000 |
|
|
Current borrowings |
||
|
Finance lease creditor |
806 |
- |
|
Bank loan |
1,844 |
- |
|
Unsecured loan |
3,086 |
- |
|
Deferred consideration on acquisitions |
- |
276 |
|
Total current borrowings |
5,736 |
276 |
|
Non-current borrowings |
||
|
Finance lease creditor |
675 |
- |
|
Bank loan |
39,731 |
- |
|
Total non-current borrowings |
40,406 |
- |
|
Current other financial liabilities |
||
|
Put options to acquire the minority interest in Enterprise Partnerships |
850 |
974 |
|
Non-current other financial liabilities |
||
|
Put options to acquire the minority interest in Enterprise Partnerships |
21,115 |
23,145 |
|
Movements in borrowings and other financial liabilities are analysed as follows: |
||
|
Unaudited |
||
|
£'000 |
||
|
Opening balance as at 1 January 2009 |
24,395 |
|
|
Acquisition of subsidiary (note 10) |
40,255 |
|
|
Drawdown of borrowings |
40,259 |
|
|
Repayment of borrowings |
(30,961) |
|
|
Repayment of put option |
(894) |
|
|
Repayment of finance lease liabilities |
(655) |
|
|
Payment of deferred consideration on acquisitions |
(286) |
|
|
Fair value adjustments and unwinding of discounts |
645 |
|
|
Amortisation of debt fees |
2 |
|
|
Exchange adjustments |
(4,653) |
|
|
Closing balance as at 30 June 2009 |
68,107 |
|
9 Provisions
|
Phoenix |
Onerous lease |
Restructu-ring |
Operational risk |
Early and part-time retirement |
Long service |
Other |
Total |
|
|
£'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 |
|
Transfer 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 |
|
Acquisition (note 10) |
- |
14,681 |
- |
- |
- |
453 |
5,450 |
20,584 |
|
Reallocation of provisions held by recently acquired subsidiaries |
- |
- |
- |
- |
- |
(798) |
798 |
- |
|
Charged/(credited) to the income statement: |
||||||||
|
- provided in the period |
- |
4,485 |
325 |
189 |
113 |
107 |
471 |
5,690 |
|
- released in the period |
- |
(2,291) |
- |
(6) |
- |
(29) |
(107) |
(2,433) |
|
- unwinding of discount |
77 |
599 |
- |
- |
- |
- |
4 |
680 |
|
Used in the period |
- |
(1,826) |
(665) |
(76) |
(730) |
(43) |
(896) |
(4,236) |
|
Exchange adjustments |
(666) |
(2,315) |
- |
(175) |
(422) |
(114) |
(1,112) |
(4,804) |
|
At 30 June 2009 |
4,641 |
17,034 |
471 |
1,268 |
2,532 |
1,332 |
7,508 |
34,786 |
Movements in the period 1 January 2009 to 30 June 2009 are unaudited; movements in the period 1 January 2008 to 31 December 2008 are audited.
Except as described below the nature of each provision is consistent with the annual financial statements for the year ended 31 December 2008, as described on page 95 of the 2008 Annual Report.
The other provisions include US litigation provisions, 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.
10 Business combinations
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 US 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 subsequently completing 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 £93 million, settled through the payment of INR 3,711 million (£49 million at the prevailing exchange rate), and through the issue of 15,249,998 Xchanging plc shares (£36 million based on the market share price of 235.5 pence per share prevailing on the date of operational control being assumed). Costs totalling £8 million have been incurred in respect of the acquisition.
The Cambridge group contributed revenue of £76.8 million and a loss after tax of £6.9 million to the Group for the period from acquisition to 30 June 2009.
Due to the recent closure of the acquisition, the fair values of significant assets and liabilities are provisional and will be finalised during the next six months to 31 December 2009, as permissible under IFRS 3, "Business Combinations". The book and estimated fair values of those assets and liabilities as at 1 January 2009 are set out below:
|
Acquiree's carrying amount |
Adjustments |
Provisional fair value |
||||
|
£'000 |
£'000 |
£'000 |
||||
|
Intangible asset (excluding goodwill) |
11,593 |
9,623 |
21,216 |
|||
|
Property, plant and equipment |
8,545 |
(34) |
8,511 |
|||
|
Available-for-sale financial assets |
2,167 |
- |
2,167 |
|||
|
Deferred income tax assets |
833 |
- |
833 |
|||
|
Trade and other receivables |
32,668 |
(2,188) |
30,480 |
|||
|
Cash and cash equivalents |
4,049 |
(103) |
3,946 |
|||
|
Trade and other payables |
(43,898) |
(21,684) |
(65,582) |
|||
|
Current income tax liabilities |
(2,643) |
(1,000) |
(3,643) |
|||
|
Financial liabilities - borrowings |
(40,446) |
191 |
(40,255) |
|||
|
Deferred income tax liabilities |
(945) |
(7,905) |
(8,850) |
|||
|
Provisions |
(12,232) |
(8,352) |
(20,584) |
|||
|
Net liabilities acquired |
(40,309) |
(31,452) |
(71,761) |
|||
The fair value adjustments in respect of intangible assets are due to the recognition of £20.5 million in respect of customer relationships, offset by the write-off of £10.9 million of intangibles recorded on Cambridge Solutions Limited's balance sheet prior to the acquisition. An adjustment to deferred income of £21.2m 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. The other adjustments to current assets, current liabilities, provisions and deferred tax liabilities relate to valuation adjustments and are provisional, 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'); 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 |
35,914 |
||
|
- Costs of acquisition |
8,102 |
||
|
Total purchase consideration |
92,533 |
||
|
Xchanging share of the fair value of net liabilities acquired |
54,577 |
||
|
Goodwill |
147,110 |
||
11 Commitments
On 13 May 2009, the Group entered into an agreement with DAB bank AG to acquire their FondsServiceBank (FSB) business unit, an investment funds administration business. As a result of this agreement, the Group will acquire all contracts with distribution partners and customers relating to the safekeeping and administration of investment fund shares for a total consideration of up to €21.4 million in cash (£18.2m at the period end exchange rate). The Group will finalise the acquisition through Fondsdepot Bank (FDB), its Enterprise Partnership with Allianz Global Investors. The transaction remains subject to competition clearance by the German Federal Cartel Office (Bundeskartellamt) but is expected to be finalised during 2010.
12 Related party transactions
The following companies are considered to be related parties of the Group as they hold minority shareholdings in a number of the subsidiaries of Xchanging plc and hence can exert significant influence over those subsidiaries.
The Corporation of Lloyd's held a 25% interest in Ins-sure Holdings Limited and a 50% interest in Xchanging Claims Services Limited for the full six month period ended 30 June 2009. 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 six month period ended 30 June 2009.
Deutsche Bank AG held a 44% interest in Xchanging etb GmbH for the full six month period ended 30 June 2009. Some of the directors of Xchanging etb GmbH are employees of Deutsche Bank AG. The emoluments of these directors are borne by Deutsche Bank AG.
Aon Limited held a 50% interest in Xchanging Broking Services Limited for the full six month period ended 30 June 2009. Some of the directors of Xchanging Broking Services Limited are employees of Aon Limited. The emoluments of these directors are borne by AON Limited.
The emoluments of these directors are borne by Allianz Kapitalanlagegesellschaft mbH held a 49% interest in Fondsdepot Bank GmbH for the full six month period ended 30 June 2009.
In addition, during the period Cambridge Integrated Services Group Inc., a wholly owned subsidiary of the Group, entered into a contract with Campagnie Pour Assistance Technique et Investissements S.A. ('CATISA') to provide consulting services, business development and procurement services. CATISA is considered to be a related party of the Group by virtue of the fact that it is an associate company of the previous owners of a major shareholding in the Cambridge Group who continue to have representation on the Cambridge Solutions Limited board.
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 30 June are set out in the table below:
|
Sales/(purchases) |
Receivables/(payables) |
|||
|
Unaudited |
Unaudited |
Audited |
||
|
30 June 2009 |
30 June 2008 |
30 June 2009 |
31 December 2008 |
|
|
Services provided by/to the Group |
£'000 |
£'000 |
£'000 |
£'000 |
|
Securities processing services |
55,855 |
44,374 |
11,891 |
2,756 |
|
Processing, expert and data services |
20,856 |
16,507 |
2,093 |
1,318 |
|
Legal and professional charges |
43 |
- |
- |
- |
|
Property charges |
524 |
548 |
34 |
- |
|
IT costs, premises, divisional corporate charges and other services in support of operating activities |
(14,117) |
(15,244) |
(5,741) |
(7,528) |
|
Operating systems, development, premises and other services in support of operating activities |
(131) |
(207) |
(54) |
(82) |
|
Desktop, hosting, telecommunications, accommodation and processing services |
(1,906) |
(1,953) |
(1,213) |
(2,057) |
|
Current accounts |
- |
- |
2,407 |
2,619 |
|
Consulting, business development and procurement services |
1,563 |
- |
- |
- |
By virtue of a significant shareholding, giving right of representation on the Board, General Atlantic LLC is considered to be a related party of the Group
Transactions with Directors and key management
The compensation below relates to the Xchanging plc Directors and other key senior managers within the Group, who constitute those people with authority and responsibility for planning, directing and controlling the Group's activities, being the Xchanging Management Board.
|
Unaudited |
||
|
30 June 2009 |
30 June 2008 |
|
|
Key management composition (including Directors) |
£'000 |
£'000 |
|
Short-term employee benefits |
5,814 |
2,888 |
|
Post-employment benefits |
15 |
34 |
|
Share-based payments |
335 |
277 |
|
6,164 |
3,199 |
|
The increase in key management compensation is consistent with the number of employees included within this definition following the acquisition of the Cambridge Group.
During 2007, 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 were subsequently exchanged for shares in Xchanging plc). The loans are non-interest bearing and become repayable on the earlier of the cessation of the employment, transfer or disposal of the shares, acceptance of another loan from the Group to refinance the shares and 31 December 2011. The Xchanging BV Employee Benefit Trust has a call option over the shares until the loans are repaid in full.
The balances due from the Directors and key management and the carrying amounts in the consolidated financial statements are:
|
Unaudited |
Audited |
|||
|
Balance outstanding 30 June 2009 |
Carrying amount at 30 June 2009 |
Balance outstanding 31 December 2008 |
Carrying amount at 31 December 2008 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
S Beard |
1,590 |
1,590 |
1,590 |
1,590 |
|
M Bruno |
424 |
424 |
424 |
424 |
|
R Houghton |
663 |
663 |
663 |
663 |
|
D Rich-Jones |
1,325 |
1,325 |
1,325 |
1,325 |
|
T Runge |
176 |
176 |
176 |
176 |
|
S Bowen |
265 |
265 |
265 |
265 |
|
4,443 |
4,443 |
4,443 |
4,443 |
|
Statement of Directors' responsibilities
The Directors confirm that this set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report
By order of the Board
|
D W Andrews |
R A H Houghton |
|
Chief Executive Officer |
Chief Financial Officer |
|
3 August 2009 |
3 August 2009 |
Independent review report to Xchanging plc
Introduction
We have been engaged by the Company to review the condensed consolidated half year financial information in the half year report for the six months ended 30 June 2009, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated balance sheet, consolidated cash flow statement and related notes. We have read the other information contained in the half-year report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated half year financial information.
Directors' responsibilities
The half year report is the responsibility of, and has been approved by the Directors. The Directors are responsible for preparing the half year report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated half year financial information included in this half year report has been prepared in accordance with International Accounting Standard 34, "Interim financial reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed consolidated half year financial information in the half year report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior written consent.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated half year financial information in the half year report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
London
3 August 2009
Notes:
Related Shares:
XCH.L