TIDMXCH
RNS Number : 0288R
Xchanging PLC
04 March 2016
4 March 2016
Xchanging plc
Full year results for the twelve months ended 31 December
2015
GBPm (unless %) 2015 2014
----------------------------------- ------- -------
Net Revenue(1) 400.5 406.8
Adjusted Operating Profit(2) 54.6 55.8
Adjusted Operating Profit
Margin 13.6% 13.7%
Statutory Operating (Loss)/Profit (38.5) 36.6
Adjusted EPS - Basic 8.49 11.86
Net Cash(3) (27.8) 13.7
Xchanging's share of Net
Cash (61.8) (31.6)
1. Net revenue is total revenue less supplier costs on
procurement contracts (where the Group acts as principal) that are
incurred by the Group and recharged to the customer.
2. Adjusted operating profit excludes exceptional items (2015:
GBP74.0 million expense 2014: GBP7.1 million expense), amortisation
of intangible assets previously unrecognised by acquired entities
(2015: GBP6.5 million 2014: GBP6.1 million) and acquisition-related
expenses (2015: GBP12.6 million 2014: GBP6.0 million).
3. Net cash is calculated as cash and cash equivalents less bank
loans and revolving credit facilities and finance lease
liabilities.
Geoff Unwin, Chairman, commented: "At the half year 2015 we
commented that the outlook for the full year 2015 was for a trading
performance in line with the prior year. The outcome for 2015 was
broadly in line with this, with net revenue of GBP400.5 million
compared with GBP406.8 million in 2014, and adjusted operating
profit of GBP54.6 million compared with GBP55.8 million in
2014.
During the year very disappointing events and performance
occurred within the Procurement sector and a 'Split and Fix' plan,
announced at the half year, was implemented in the second half of
the year. More positively, it was especially pleasing to see the
proving of our insurance software business Xuber, with material
contracts being signed as we turned into 2016, in addition to the
continuing solid performance of the core BPS business.
Whilst the operational developments and progress of the company
are reviewed later in this report, strategically, a review of 2015
must be dominated by the takeover bid activity that took place in
the second half of the year. Formal announcements have been made,
as required by regulation, throughout the ongoing course of the bid
process. Most significantly, following a formal bid made on 9
December 2015, which was supported by Xchanging's Board, on 18
January 2016, Computer Sciences Corporation ('CSC') declared their
bid unconditional as to shareholder acceptances having secured
shareholder commitments in respect of, or direct ownership of,
approximately 87.06% of Xchanging's existing issued share capital.
Subsequently, an announcement by CSC on 8 February 2016 confirmed
this level had risen to approximately 91.78%.
On 15 February 2016, CSC announced that the US merger control
condition set out in their offer document had been satisfied. There
are further regulatory conditions to be satisfied before CSC's bid
can become wholly unconditional and the process of obtaining these
is underway by CSC. In order to accommodate this process, it was
agreed with the Takeover Panel that the date by which the offer
must become or be declared unconditional would be extended to 16
May 2016."
Enquiries
Maitland Tel: +44 (0) 207 379 5151
Emma Burdett
Dan Yea
www.xchanging.com
@XchangingGroup
Linkedin/company/xchanging
Cautionary Statement:
This announcement contains forward-looking statements that are
based on current expectations or beliefs, as well as assumptions
about future events. These forward-looking statements can be
identified by the fact that they do not relate only to historical
or current facts. Forward-looking statements often use words such
as anticipate, target, expect, estimate, intend, plan, goal,
believe, will, may, should, would, could, is confident, or other
words of similar meaning. In particular, any statements regarding
Xchanging's strategy, dividend policy and other future events or
prospects are forward-looking statements. Undue reliance should not
be placed on any such statements because they speak only as at the
date of this announcement and, by their very nature, they are
subject to known and unknown risks and uncertainties and can be
affected by other factors that could cause actual results, and
Xchanging's plans and objectives, to differ materially from those
expressed or implied in the forward-looking statements.
These forward-looking statements are not guarantees of future
performance and there are a number of factors (many of which are
outside of Xchanging's control) which could cause actual results to
differ materially from those expressed or implied in
forward-looking statements. Among these factors are: increased
competition, the loss of or damage to one or more key customer
relationships, changes to customer ordering patterns, delays in
obtaining customer approval or price level changes, the failure of
one or more key suppliers, the outcome of business or industry
restructuring, the outcome of any litigation, changes in economic
conditions, currency fluctuations, changes in interest and tax
rates, changes in raw material or energy market prices, changes in
laws, regulations or regulatory policies, developments in legal or
public policy doctrines, technological developments, the failure to
retain key management, or the key timing and success of future
acquisition opportunities or major investment projects.
Save for those forward-looking statements required by the
Listing Rules, the Disclosure and Transparency Rules and/or the
Prospectus Rules, Xchanging undertakes no obligation to update
these forward-looking statements, and will not publicly release any
revisions it may make to these forward-looking statements that may
result from events or circumstances arising after the date of this
announcements. Xchanging therefore will comply with its obligations
to publish updated information as required by law or by any
regulatory authority but assumes no further obligation to publish
any additional information.
Results for the twelve months ended 31 December 2015
Chairman's statement
OVERVIEW OF THE YEAR
At the half year 2015 we commented that the outlook for the full
year 2015 was for a trading performance in line with the prior
year. The outcome for 2015 was broadly in line with this, with net
revenue of GBP400.5 million compared with GBP406.8 million in 2014,
and adjusted operating profit of GBP54.6 million compared with
GBP55.8 million in 2014.
During the year very disappointing events and performance
occurred within the Procurement sector and a 'Split and Fix' plan,
announced at the half year, was implemented in the second half of
the year. More positively, it was especially pleasing to see the
proving of our insurance software business Xuber, with material
contracts being signed as we turned into 2016, in addition to the
continuing solid performance of the core BPS business.
STRATEGIC DEVELOPMENT
Whilst the operational developments and progress of the company
are reviewed later in this report, strategically, a review of 2015
must be dominated by the takeover bid activity that took place in
the second half of the year. Formal announcements have been made,
as required by regulation, throughout the ongoing course of the bid
process. Most significantly, following a formal bid made on 9
December 2015, which was supported by Xchanging's Board, on 18
January 2016, Computer Sciences Corporation ('CSC') declared their
bid unconditional as to shareholder acceptances having secured
shareholder commitments in respect of, or direct ownership of,
approximately 87.06% of Xchanging's existing issued share capital.
Subsequently, an announcement by CSC on 8 February 2016 confirmed
this level had risen to approximately 91.78%.
On 15 February 2016, CSC announced that the US merger control
condition set out in their offer document had been satisfied. There
are further regulatory conditions to be satisfied before CSC's bid
can become wholly unconditional and the process of obtaining these
is underway by CSC. In order to accommodate this process, it was
agreed with the Takeover Panel that the date by which the offer
must become or be declared unconditional would be extended to 16
May 2016.
BOARD
There were two changes to the Board composition in 2015.
Effective 31 December 2015 we saw the retirement of Ken Lever from
the role of Chief Executive, with Craig Wilson succeeding him,
effective 1 January 2016, having joined the Board as Chief
Executive Designate on 5 October 2015.
The Board would like to thank Ken for his outstanding
contribution to Xchanging during five intensive years of
transformation, and wish him well in his future endeavours. The
Board also welcomes Craig to his new role.
As announced at the half year 2015, effective 31 December 2015,
Michel Paulin stood down from his role as Non-Executive Director.
The Board would like to thank Michel also for his contribution over
his six year tenure of office.
PEOPLE
Once again this year I would like to thank all our employees for
their unstinting dedication and hard work. They have tackled the
operational challenges of the year resolutely and pressed ahead
with enthusiasm in developing our significant potential. In the
latter part of the year, they have remained steadfast despite the
inevitable uncertainties arising from the bid activity. Xchanging
would not be the valuable asset it is without their
contribution.
DIVIDEND
It is a condition of CSC's offer that no dividend is recommended
or paid and so the Board is not proposing one to shareholders.
ANNUAL REPORT
(MORE TO FOLLOW) Dow Jones Newswires
March 04, 2016 02:00 ET (07:00 GMT)
Given the advanced stage of CSC's bid, although there remain
regulatory conditions to be satisfied, our 2015 annual report has
been written in a curtailed form against the backdrop of a likely
change of control in the near future. However, at the time of
writing, Xchanging remains an independent business, and the views
in the annual report reflect this position.
CEO report
INTRODUCTION
I was appointed by the Board in September 2015 to succeed Ken
Lever from 1 January 2016. I started as Chief Executive Designate
on 5 October 2015 which has given me an opportunity to assess the
business, the strategy, the events of 2015, and to ensure that we
have a sound foundation for the future - whether this is as an
independent company or as part of another entity.
At the half year 2015 we commented that the outlook for the full
year 2015 was for a trading performance in line with the prior
year. The outcome for 2015 was broadly in line with this, with net
revenue of GBP400.5 million (2014: GBP406.8 million), adjusted
operating profit ('AOP') of GBP54.6 million (2014: GBP55.8 million)
and operating cash flow ('OCF') of negative GBP10.4 million down
from the prior year (2014: GBP6.5 million), due largely to the
working capital unwind of some GBP18.0 million from one contract
exit in the UK.
Coming into 2015, Xchanging had completed the turnaround from
being a Business Process Outsourcing company - characterised by a
small number of large legacy contracts - to being a technology-led
business services company. The elements of the strategy for 2015
were clearly set out in the 2014 annual report. In summary:
-- Simplify the structure around Business Processing Services
('BPS'), Technology (including the Xuber insurance software
business) and the Procurement business;
-- Invest in specific technology developments and acquisitions
to further differentiate these businesses; and
-- Complete the stabilisation or rundown of underperforming
legacy BPO businesses and contracts.
In Insurance BPS, the strategy was to build on the unique
relationship we already have with Lloyd's and the International
Underwriters Association - our XIS and XCS joint ventures - by
offering an enhanced range of elective services and by being an
effective technology provider to our partners as they respond to
the competitive challenges of the global insurance market. In
Financial Services BPS, the strategy was to build on the capital
markets businesses in Italy and Germany which had been stabilised
through 2014.
In Technology, the strategy had two distinct elements: continue
to invest in the Xuber business by integrating Total Objects and
the businesses acquired from Agencyport into our existing business,
and to grow the largely India-based Application Services business
by providing clients with an agile alternative to the established
tier-1 Indian 'pure play' providers.
In Procurement, the strategy was to build a differentiated,
technology-led proposition based on the MM4 technology platform and
enhanced by the Spikes Cavell spend-analytics solution (acquired in
February 2015); reducing the reliance on a small number of legacy
procurement BPO contracts.
It is clear that some of the most important elements of this
strategy - in particular the investments in the Xuber business -
have worked well and are bearing fruit. It is equally clear that
other elements have not worked well; the problems we had with the
Procurement business, albeit a small part of the overall business,
were set out in our half year update in July. I will cover the 2015
performance in each of the businesses below.
Following the half year update, the second half of the year was
overshadowed by the takeover bid activity. This is referenced in
the Chairman's statement. Nonetheless, this report has been
prepared as if the Company is to remain independent.
Business processing Services ('BPS')
BPS has performed strongly despite a number of anticipated
challenges, including the decision by Aon to take back in-house
on-shore claims processing; the decision by Lloyd's to change the
responsibilities of the lead follower which reduced our claims
processing volume (together these changes reduced net revenue by
GBP18.9 million); and the weakening of the Euro and Australian
dollar which adversely impacted net revenue by GBP2.8 million.
Despite these and other challenges, net revenue for this business
was GBP262.2 million (2014: GBP282.4 million). AOP was GBP61.0
million (2014: GBP64.6 million), representing an AOP margin of
23.3% (2014: 22.7%), largely reflecting the benefit of cost
reduction initiatives taken last year.
BPS has continued to pursue the technology-enabled processing
strategy and we are seeing encouraging signs of growth from new
offerings. Robotic Process Automation has been embedded in our
operations and is now being taken to our customers as part of our
enhanced service offering.
We are now starting to exploit the software assets we have in
Xuber with existing BPS clients in the London Market. We have
combined our original Binder 360 offering with BinderCloud from the
Total Objects acquisition. The new offering, BinderCloud 360, sits
at the heart of our new menu of Delegated Underwriting Services.
Launched in 2015, the service has been well received in the market,
winning nine prestigious broker and carrier customers - including
Catlin and Argo.
We are working closely with Lloyd's of London to provide support
for the Central Services Refresh Programme ('CSRP') - part of the
wider market modernisation. Within this, our current programme of
new technology introductions, due to continue into 2016, is being
well received. Our investment in 2015 of GBP8.1 million in
developing this technology is key to ensuring that we remain at the
heart of the London Market and contribute strongly to its
competitiveness.
In the later part of the year, Lloyd's appointed Xchanging as
their technology and processing partner for the Singapore Shared
Service hub and we have already enrolled a number of managing
agents in this service.
During the second half of the year we also made the decision to
impair the Netsett asset by GBP2.9 million. Although we believe the
long-term potential for this solution remains strong - a net
settlement requirement forms one element of the London Market
Target Operating Model - it is clear that in the short term,
revenues from Netsett were too uncertain in terms of timing and
quantum to justify the asset valuation.
In Australia, Xchanging continues to be a top performing service
provider to the State of Victoria for the WorkSafe workers'
compensation insurance service. This contract is being retendered
and we think we are well-placed to maintain or grow our share of
the transaction volume in the second half of 2016. We have also
attracted a number of new customers in 2015 to the X-alt platform
in which we have a 90% stake and launched in April. In 2015 we
renewed the Toyota workers' compensation contract. Separately, the
exit from the workers' compensation contract in the State of New
South Wales has been completed without incident.
In our Financial Services BPS businesses we have made steady
progress in Italy and Germany through 2015. In 2014 Xchanging took
full control of Fondsdepot Bank in Germany from AGI and we have
continued to invest in digitalisation to improve the productivity
and competitiveness of this business. In Italy, we completed the
stabilisation and integration of the two business (Kedrios and AR
Enterprise).
Technology (INCLUDING XUBER)
The Technology business, including the Xuber insurance software
business, has also performed well, despite the comparative effect
of the exit from the London Metal Exchange ('LME') contract in May
2014 (following the decision to in-source this service after the
exchange was acquired by Hong Kong Exchanges and Clearing Limited),
and the impact on AOP of a higher amortisation charge of GBP11.7
million (2014: GBP8.4 million) from the increased investments in
Xuber and acquisitions. Net revenue was GBP113.6 million (2014:
GBP93.0 million). AOP was GBP14.5 million (2014: GBP6.8 million),
representing an AOP margin of 12.8% (2014: 7.3%).
The acquisition of the European insurance software businesses
from Agencyport Software, announced on 4 July 2014, was finally
cleared by the Competition and Markets Authority ('CMA') on 29
April 2015. The process not only delayed our ability to integrate
the business, but also put a material burden on management resource
as well as incurring costs. In the meantime, this business
continued to perform on a standalone basis in-line with our
expectations and in-line with the acquisition business plan.
Following CMA clearance, we have now completed the integration of
the businesses acquired from Agencyport into our Xuber insurance
software business, realising the synergies, product offering and
new market opportunity benefits envisaged at the time of the
acquisition.
Similarly, the Total Objects acquisition, completed in December
2014, is contributing well in its first full year and has been
successfully building its customer base. Our Xuber insurance
software business continues to strengthen its profile in the market
signing over 30 new customers in 2015 across all of Xuber's
software solutions. Three contracts are particularly significant:
the first, a multi-year contract with the health service and
insurance group Cigna covering initial licence and maintenance
services and also future services provision; the second, with Aon
to provide Xuber software, implementation services, ongoing support
and hosting for its wholesale broking operations platform for the
London Market; the third, a contract with Ariel Re which highlights
Xuber's multi-territory capability.
A number of implementations including Everest Re are at an
advanced stage of implementation. Building on our installed base of
more than 200 customers, and with a strong pipeline, we remain
confident in the growth potential of the Insurance Software
business in 2016 and beyond.
(MORE TO FOLLOW) Dow Jones Newswires
March 04, 2016 02:00 ET (07:00 GMT)
In our Application Services business, the strong growth momentum
continues. We have won a significant number of new clients and
substantially increased our portfolio of work with our existing
customers. With nearly 2,000 software engineers, located across
Bangalore, Gurgaon and Chennai and other centres, our Application
Services business has seen steady growth over the last 3 years,
moving to a strong profit contributor in 2015. We provide a range
of applications services to a broad range of small and medium sized
customers (mostly in the US, Europe and Singapore) who prefer to
work with Xchanging rather than a tier-1 global integrator because
we can provide a service which is more agile and more tailored to
their needs.
Infrastructure Management Services ('IMS') has been a
significant contributor to the Technology business performance in
2015. The business largely runs out of our own facilities in the UK
and utilises suppliers and partners to provide IT infrastructure,
data centre and network services. Approximately 55% of IMS revenues
underpin offerings delivered by Xuber and BPS and this allows
Xchanging to offer clients solutions in any required mode of
operation: on-premise licence only; off-premise, fully-managed
service; managed (dedicated) cloud service; software as a service
('SaaS'); or hybrid. Complementing IMS, the Data Integration
business continues to do well and allows Xchanging to offer clients
an end-to-end service for their network needs, from design all the
way through to systems installation and management.
procurement
Although only a small part of the business (some 6% by revenue),
as foreshadowed in our First Quarter 2015 Update published in
April, and updated in the half year statement in July, the
Procurement business has delivered extremely poor performance in
2015. This resulted in net revenue of GBP24.7 million (2014:
GBP31.3 million), an AOP loss of GBP10.9 million (2014: GBP2.5
million loss) and GBP74.2 million of exceptional charges. Without
the significant failure of the Procurement business, the Group
would have exceeded the market expectations on AOP set at the start
of 2015.
At the core of the issues in Procurement was a weak performance
in the traditional procurement BPO business, exacerbated by
clients' decisions to reduce volumes; gain-sharing thresholds which
were not achieved; failure to match the rate of cost reduction to
revenue declines; contract exits and contract renegotiations. These
circumstances persisted throughout the year. We also noted that in
the first half of 2015 we would bear the costs of the
implementation process for the new Tail-end Spend Management
('TSM') business won in the second half of 2014, with significant
benefits expected to start showing in the second half of the year.
Whilst the costs of implementation were incurred in the first half
as expected, the associated stream of new revenue was slow to gain
momentum and significantly lagged our expectations, following the
decision by our most significant client to sell the business that
would have generated most of the volume. As a result, a mutual
decision was made to exit the contract at the end of 2015. The
combined effect of the traditional outsourcing and TSM businesses
has significantly impacted the Procurement business result overall
for 2015.
In our First Quarter 2015 Update we commented that a recovery
plan was underway to address the challenges facing the Procurement
business, and in the first half, significant work had been
undertaken to manage the cost base. However, despite reducing the
cost base, anticipated new contracts in the second quarter did not
materialise, resulting in a deterioration of the financial year
forecast for Procurement overall. This resulted in the 'Split and
Fix' plan being announced at the half year.
The elements of this plan were:
-- move the comparatively healthy UK BPO contracts into our
BPS business;
-- move MM4, Spikes Cavell and the few North American procurement
BPO contracts into the Technology business;
-- run-down the remaining procurement BPO contracts, including
our business in France;
-- materially reduce the overhead in the business in the second
half of the year; and
-- review the balance sheet judgements for Procurement in the
light of the performance.
Elsewhere in this report we have detailed the balance sheet
judgements relating to the Procurement business: goodwill
impairment of GBP59.3 million; asset impairments of GBP8.0 million,
and restructuring and onerous contract provisions of GBP6.9
million. Also the exit of one of the UK procurement BPO contacts in
2015 resulted in a one-off working capital outflow of GBP18.0
million.
The 'Split and Fix' plan is now substantially complete. We will
not have a discrete Procurement business going forward.
In the light of the problems experienced in the Procurement
business I have examined the controls regime across Xchanging to
ensure that the issues experienced in the Procurement business are
not repeated elsewhere - whether or not Xchanging continues as an
independent company. As a consequence of this review, certain
additional controls have been or will be added to other parts of
the business to prevent similar events occurring.
Concluding remarks and outlook
The strategic imperative for the business can now be summarised
as follows:
-- Simplify the business around its core value proposition -
to be the leading provider of technology-enabled business
solutions to the global insurance industry;
-- Continue to develop the relationship we have with the London
Market by focusing on delivery performance, value for money
and innovation;
-- Bring the power of the Xuber portfolio to bear for existing
clients and new clients in North America and Asia, helping
them to compete in the digital, global marketplace for insurance;
and
-- Determinedly improve the contribution and predictability
of all our businesses.
The foundations of this plan are strong. The organisational
simplifications that are underway, together with the recent
successes in the Xuber business with Aon and Cigna, and the success
we are starting to see in the BPS business as we better exploit the
capabilities we have across the firm, especially in Xuber, provide
added confidence in the 2016 plan. Despite the uncertainty about
our future ownership, the management team and I feel confident that
with our plan, our clients, our people and our capabilities we can
look forward to a year of revenue and profit growth in 2016 and a
successful year for all our stakeholders.
Financial review
Financial indicators for 2015 are as follows:
GBPm (unless %) 2015 2014
----------------------------------- -------- -------
Revenue 440.2 573.5
Net Revenue(1) 400.5 406.8
Adjusted Operating Profit(2) 54.6 55.8
Adjusted Operating Profit
Margin 13.6% 13.7%
Statutory Operating (Loss)/Profit (38.5) 36.6
Adjusted Operating Profit
before Tax 46.9 51.1
Adjusted EPS - Basic 8.49 11.86
Statutory EPS - Basic (27.55) 6.62
Operating Cash Flow(3) (10.4) 6.5
Adjusted Cash Conversion(4) 0.7% 17.2%
Net Cash(5) (27.8) 13.7
Xchanging's share of Net
Cash (61.8) (31.6)
Equity Free Cash Flow(6) (19.0) (7.6)
Return on Invested Capital(7) 20.9% 21.0%
Economic Profit(8) 21.4 24.9
----------------------------------- -------- -------
1. Net revenue is total revenue less supplier costs on
procurement contracts (where the Group acts as principal) that are
incurred by the Group and recharged to the customer.
2. Adjusted operating profit excludes exceptional items (2015:
GBP74.0 million expense 2014: GBP7.1 million expense), amortisation
of intangible assets previously unrecognised by acquired entities
(2015: GBP6.5 million 2014: GBP6.1 million) and acquisition-related
expenses (2015: GBP12.6 million 2014: GBP6.0 million).
3. Operating cash flow is calculated as cash generated from
operations less net capital expenditure (including pre-contract
costs) (2015: GBP36.0 million 2014: GBP43.4 million) and dividends
to non-controlling interests (2015: GBP12.5 million 2014: GBP11.2
million).
4. Adjusted cash conversion is calculated as operating cash
flow, after adding back the cash impact of exceptional items (2015:
GBP7.2 million inflow 2014: GBP0.7 million outflow)
acquisition-related expenses (2015: GBP3.1 million 2014 GBP1.7
million) and the movement in customer cash accounts held by
Fondsdepot Bank (2015: GBP0.5 million 2014: GBP0.7 million outflow)
divided by adjusted operating profit.
5. Net cash is calculated as cash and cash equivalents less bank
loans and revolving credit facilities and finance lease
liabilities.
6. Equity free cash flow is calculated as operating cash flow
less cash tax (2015: GBP4.7 million 2014: GBP12.4 million) and net
interest paid including dividends received (2015: GBP3.9 million,
2014: GBP1.7 million).
7. Return on invested capital is adjusted operating profit
(2015: GBP54.6 million 2014: GBP55.8 million) less a tax charge at
the Group's effective tax rate (2015: 24.7% 2014:14.9%), divided by
invested capital. Invested capital (2015: GBP196.3 million 2014:
GBP226.3 million) is calculated as the Group's net assets (2015:
GBP168.5 million 2014: GBP240.0 million), less net cash (2015:
(GBP27.8 million) 2014: GBP13.7 million).
(MORE TO FOLLOW) Dow Jones Newswires
March 04, 2016 02:00 ET (07:00 GMT)
8. Economic profit is adjusted operating profit (2015: GBP54.6
million 2014: GBP55.8 million) less a tax charge at the Group's
effective tax rate (2015: 24.7% 2014: 14.9%), less a charge for
invested capital. The charge for invested capital is calculated as
the Group's invested capital (as defined above, (2015: GBP196.3
million 2014: GBP226.3 million)) multiplied by the Group's weighted
average cost of capital, being 10.0% (2014: 10.0%).
GROUP FINANCIAL PERFORMANCE
The trading performance for the 2015 year, on an adjusted basis,
was broadly in line with 2014. Net revenue was GBP400.5 million
(2014: GBP406.8 million), adjusted operating profit ('AOP') was
GBP54.6 million (2014 GBP55.8 million) and operating cash flow
('OCF') was negative GBP10.4 million down from the prior year (2014
GBP6.5 million), due largely to the working capital unwind of some
GBP18.0 million from one contract exit in the UK.
The sector performance is detailed in note 1, with the detail of
the operational performance of each of our sectors outlined in the
CEO report.
EXCEPTIONAL ITEMS
The statutory operating loss was GBP38.5 million (2014: GBP36.6
million profit), this includes GBP74.0 million (2014: GBP7.1
million) of exceptional items which are included in note 2. Of the
net GBP74.0 million of exceptional items, GBP74.2 million related
to the Procurement business.
CASH FLOWS
2015 2014
GBPm GBPm
---------------------------------------------------- ------- --------
Adjusting operating profit 54.6 55.8
Adjusting items (93.1) (19.2)
------- --------
Statutory operating (loss)/profit (38.5) 36.6
Depreciation and amortisation 31.5 26.5
Non-cash items / non-cash exceptional items 76.3 9.3
Share based payments 2.2 2.7
Statutory operating profit less non-cash items 71.5 75.1
----------------------------------------------------- ------- --------
(Decrease)/increase in customer cash deposits 0.5 (0.7)
Movement in working capital (23.7) (7.9)
Movement in pensions (3.7) (6.2)
Movement in provisions (6.5) 0.8
Cash generated from operations 38.1 61.1
----------------------------------------------------- ------- --------
Dividends to NCI (12.5) (11.2)
Capital expenditure (36.0) (43.4)
Operating Cash flow (10.4) 6.5
----------------------------------------------------- ------- --------
Interest (3.9) (1.7)
Tax (4.7) (12.4)
Equity free cash flow from operations (19.0) (7.6)
----------------------------------------------------- ------- --------
Acquisitions and disposals (including put options) (12.0) (85.6)
Dividends paid to shareholders (6.8) (6.1)
Other cash flows (0.3) (3.3)
Foreign currency movements (3.4) (3.8)
Movements in net cash in the period (41.5) (106.4)
----------------------------------------------------- ------- --------
The decrease in the movement in working capital was due to the
exit of a large Procurement contract during the year, resulting in
an GBP18.0 million outflow of working capital.
FY 2015 FY 2014
GBPm GBPm
--------------------------------- -------- --------
Cash
Xchanging wholly owned entities 96.7 92.8
Xchanging Solutions 11.3 7.8
Enterprise Partnerships 19.5 28.6
---------------------------------- -------- --------
127.5 129.2
Xchanging's share of cash
Xchanging wholly owned entities 63.6 58.3
Xchanging Solutions 8.5 5.9
Enterprise Partnerships(1) 21.4 19.7
Bank and other debt (155.3) (115.5)
Xchanging's share of net cash (61.8) (31.6)
---------------------------------- -------- --------
1. The aggregate cash balance in Enterprise Partnerships
represents working capital and accumulated but unpaid distributions
to the shareholders. Xchanging receives cash from Enterprise
Partnerships through contractual licence fees and dividends. To
provide greater transparency on the amount of cash that is
attributable to the shareholders of Xchanging we show Xchanging's
share of net cash. It takes a prudent view as it makes no attempt
to allocate Xchanging's share of working capital that is held in
the Enterprise Partnerships.
CAPITAL EXPENDITURE
The Group reduced its capital expenditure to GBP36.0 million in
2015 (2014: GBP46.7 million). Our organic investment programme can
be split into three areas:
-- Product development;
-- Internal change programme; and
-- Refresh.
Material projects include CSRP (GBP8.1 million), Insurance
Market Repository ('IMR') (GBP6.1 million), Xuber Enterprise Suite
(GBP4.6 million), and a new SAP finance system (GBP5.8 million). We
are working closely with Lloyd's of London to provide support for
the CSRP - part of the wider market modernisation. Our investment
in 2015 of GBP8.1 million in developing this technology is key to
ensuring that we remain at the heart of the London market and
contribute strongly to its competitiveness.
ACQUISITIONS
On 25 February 2015, the Group acquired 100% of the share
capital of Spikes Cavell Analytic Limited ('Spikes Cavell'), a
British company providing spend analytics technology and services
mainly to public sector institutions in the UK and higher education
authorities in the US, but also increasingly to the private sector.
Xchanging paid an initial consideration of GBP3.8 million in cash
with further payments of up to GBP3.1 million payable in 2015 and
2016, of which GBP0.4 million is recognised in the purchase price
and GBP2.7 million is subject to certain performance targets being
achieved. Goodwill was initially recognised on the acquisition,
however it was impaired during the second half of the year as part
of the broader Procurement sector goodwill impairment.
This table shows the total cash outflow during 2015 and
potential future payments for acquisitions. Note that in the cash
flow statement these amounts are presented net of any cash acquired
from the business on acquisition.
Date of Total Gross Payments Outstanding Outstanding Total
transaction to 31 payments in 2015 deferred related
Dec in 2015 (net consideration payments
2014 of cash
acquired)
--------------------------- -------------- ------- ---------- ----------- ------
2016 2016 2017
--------------------------- -------------- ------- ---------- ----------- --------------- ------ ------ ------
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------------- ------- ---------- ----------- --------------- ------ ------ ------
Acquisition of AR October
Enterprise 2012 17.8 2.3 2.3 - 0.1 - 20.2
September
Acquisition of MM4 2013 13.5 4.9 4.9 - 0.9 - 19.3
Xchanging Italy put January
option exercise 2014 4.0 - - - - - 4.0
Investment in MachineShop March 2014 0.6 - - - - - 0.6
Businesses acquired
from Agencyport July 2014 63.1 - - - - - 63.1
FdB put option exercise July 2014 10.8 - - - - - 10.8
Acquisition of Total December
Objects 2014 18.7 0.8 0.8 0.8 3.0 3.5 26.8
Acquisition of Spikes February
Cavell 2015 - 4.2 4.0 - 1.8 - 6.0
--------------------------- -------------- ------- ---------- ----------- --------------- ------ ------ ------
Total 128.5 12.2 12.0 0.8 5.8 3.5 150.8
------------------------------------------- ------- ---------- ----------- --------------- ------ ------ ------
BORROWING FACILITIES AND COVENANTS
As at 31 December 2015, GBP155.0 million (2014: GBP115.0
million) was drawn as cash under the Group's credit facility and a
further GBP0.8 million (2014: GBP0.8 million) was utilised through
guarantees. Refer to note 9 for more information regarding the
Group's borrowing facilities.
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As at 31 December the Group was compliant with both of its
financial covenants:
As at 31 As at 31 Metric Test Criteria
December December
2015 2014
---------------- ---------- ---------- --------------------------- --------------
Ratio of Xchanging's
share of EBITDA to
net consolidated finance Minimum of
Interest cover 11.5x 21.6x charges 5.0x
---------------- ---------- ---------- --------------------------- --------------
Ratio of consolidated
borrowings to Xchanging's Maximum of
Leverage 2.2x 1.8x share of EBITDA 3.0x
---------------- ---------- ---------- --------------------------- --------------
DIVIDENDS
It is a condition of CSC's offer that no dividend is recommended
or paid and so the Board is not proposing one to shareholders.
Principal risks and uncertainties
The below table gives examples of what we do to manage our
principal risks. The Board considers these to be the most
significant risks that could materially affect the Group's
financial condition, performance, strategies and prospects. The
risks listed do not comprise all risks faced by the Group and are
not set out in any order of priority. Additional risks not
presently known to management, or currently deemed to be less
material, may also have an adverse effect on the business.
Risk Risk description and Mitigating Actions
potential
Impact
-------------------------- ------------------------- ---------------------------------------------------------------
Takeover implications On 9 December 2015, CSC
announced a unanimously * We have been transparent on all aspects of the offer
recommended cash offer process and are working closely with our employees
for Xchanging at a price and our clients. We have put mitigating actions in
of 190 pence per share. place where appropriate. The risks of the proposed
The board of Xchanging acquisition not proceeding has also been identified
recommended that and assessed.
Xchanging
shareholders accept the
offer from CSC for the * Delivering high quality services and delivery on our
reasons set out in CSC's financial plans continue to be our top priorities.
offer document,
including
the significant premium
it implies.
The Directors believe
that,
as a standalone
business,
Xchanging has a good
future.
However there are
certain
benefits of being
acquired
by a significantly
larger
organisation with a
greater
scale of technology and
a larger insurance
client
base. The Directors also
view the proposed
acquisition
as being positive for
shareholders
and customers.
There is a risk of
uncertainty
during the period
between
the announced bid and
the
pending change of
control
in terms of employee
morale,
senior management
distraction
and the perception of
this
transaction with clients
and prospective clients.
Further, should the
proposed
acquisition not proceed
to a conclusion, there
could be a further
period
of uncertainty.
-------------------------- ------------------------- ---------------------------------------------------------------
Failure to secure We operate in dynamic
new business and * Investing in innovative products and services for
from both new competitive markets and, both new and existing customers.
and existing as such, failure to
customers secure
new business could * Ability to offer competitive low-cost offshore
result services.
in the slowdown in the
replacement of
businesses * Market dynamics monitoring and service enhancement.
exited during 2015.
This risk materialised
in the current period * We have implemented more rigorous sales review and
within contract governance processes which will help us to
the Procurement sector. focus our resources on the highest quality
The associated stream of opportunities. This improves controls over the
new revenue was slow to scrutiny of commercial, legal and delivery risks.
gain momentum and
significantly
lagged behind our * We have implemented more robust account management
expectations. structures which will help us to increase client
Over the last two years satisfaction, to retain clients, and to grow the
Software licences have existing revenue base through the cross selling of
become an increasingly other products and services.
important element of our
offerings. The timing of
signing of licences is
difficult to foresee so
our revenue may become
less predictable than
before.
-------------------------- ------------------------- ---------------------------------------------------------------
Loss of our unique Given our unique
position in the position * We continue to utilise our signi cant domain
London insurance in the London insurance expertise in this area in order to establish
market market, we must continue ourselves as the leading provider to the market.
to ensure that we
provide
a high quality service * Through XIS, our joint venture with Lloyd's and IUA,
and invest in the future Xchanging has invested in the Central Services
development of this Refresh Programme. This investment specifically
market. provides for the processing of global standard
A reduction in our role re/insurance accounting and settlement and claims
in this market would messages to make the London Market and the central
have services platform more attractive to brokers to place
a significant impact on business.
our profitability.
* There has also been continued investment in the
London Market Insurers Market Repository platform now
storing over 50 million customer documents. The XIS
joint-venture is actively engaging in the London
Market Target Operating Model modernisation programme
and was selected by Lloyd's to supply services to the
Lloyd's businesses operating in Singapore using
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Xchanging's Total Objects insurance software.
* A new generation of technology enabled insurance
services has been launched with positive customer
interest. These services are powered by Xchanging's
Total Objects BinderCloud technology and directed at
customers' delegated "binding" authority business.
* In the Director's view, following completion of the
proposed takeover by CSC, the scale of CSC's
insurance relationships would help to mitigate this
risk further.
-------------------------- ------------------------- ---------------------------------------------------------------
Failure to utilise With the new generation
and exploit of competitors and * Injecting technology-enablement into our products and
technology-enablement products services is core to our growth strategy and we have
for growth coming on to the market taken the following steps:
and the onset of digital
technology disrupting
our o Making digital enablement
chosen markets and our an overt
clients' traditional part of every group business
business IT
models there is a risk strategy;
that if Xchanging fails o Tasking our Group IT & Change
to respond to embrace Committee with the role of
new Digital
technologies and deliver leadership across all group
innovative products, it businesses;
will lose relevance and o Working to ensure that Xchanging
market share. is at the heart of market
modernisation within the
Insurance
sector;
o Continuing to Invest in
Xuber to
develop a market-leading
technology offering;
o Investing in developing
new
offerings and innovative
value-
adding customer solutions;
and
o Review our existing products
and
services to ensure that they
meet
our customers' requirements.
* In the Directors' view, the scale of CSC's IT
capability would help to mitigate this risk further.
-------------------------- ------------------------- ---------------------------------------------------------------
Failure to integrate The Group may be
new acquisitions unsuccessful * Business, legal, tax and financial due diligence
successfully in evaluating material carried out prior to acquisition to seek to identify
risks involved in and evaluate material risks and plan the integration
completed process.
acquisitions and may be
unsuccessful in
integrating * Warranties and indemnities included in purchase
any acquired operations agreements.
with its existing
businesses.
If material risks are * Board oversight of material acquisitions and review
not of the integration and performance of recent and
identified prior to prior acquisitions.
acquisition
or the Group experiences
difficulties in
integrating
an acquired business, it
may not realise the
expected
benefits from such an
acquisition
and the Group's
financial
condition could be
adversely
affected.
-------------------------- ------------------------- ---------------------------------------------------------------
Customer concentration A concentration of
in key markets material * Our commercial risks continue to be well managed
contracts can lead to a through legal review, delegated authorities and
reliance on specific contract monitoring processes.
customers,
which may result in
increased * We use dedicated management teams and executive
variability and involvement to ensure our performance with all large
uncertainty clients.
in the Group's results
if one of those
contracts * We continue to invest in sales to grow our client
were to be lost. Partial base, decreasing client concentration and
or full termination of diversifying risk.
certain customer
contracts
could result in
impairment
of goodwill as well as
impacting operational
performance.
-------------------------- ------------------------- ---------------------------------------------------------------
Contract management Our reputation, and
(including contract ultimately * Detailed implementation and delivery plans with
execution and our profitability, is strong management control and oversight.
initial contracting dependent
process) upon the high level of
service we deliver in * Use of experienced employees with strong project,
implementing change and people management skills.
existing and new
contracts
for our customers. It is * Key stakeholder Relations Plan.
also dependent upon
turning
high quality * Customer Service Review Boards.
opportunities
into deliverable,
profitable * The proposed takeover by CSC should give the Xuber
contracts. business additional flexibility in the provision of
In the Xuber business, resources to support the growing Xuber client base.
success in delivering
Xuber
licences and sales * Major programme and project reporting has been
creates improved. Projects are monitored using consistent
an additional level of industry-standard reporting metrics, with oversight
risk in implementing the from the Group Change programme management office.
software in new clients.
Failure to meet our
customers' * We have implemented a more rigorous sales review and
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expectations and governance processes which will help us to focus our
contractual resources on the highest quality opportunities. This
commitments would have improves controls over the scrutiny of commercial,
a signi cant impact upon legal and delivery risks.
our reputation and pro
tability and could
result
in unexpected and costly
litigation.
This risk materialised
in the current year
within
our Procurement sector.
Clients decided to
reduce
contract volumes,
gain-share
thresholds were not met
and there was a weak
performance
on the traditional BPO
contracts. As a result,
the 'Split and Fix' plan
was executed.
-------------------------- ------------------------- ---------------------------------------------------------------
Failure to attract, The knowledge, skills
select, develop and * Remuneration policies designed to attract, retain and
and retain key performance of our reward appropriate employees.
personnel employees
are central to our
success. * Talent strategy to provide opportunities for
We must attract, develop employees to develop careers.
and retain the talent
required
to fulfil our ambitions. * Formalised objective setting in place for employees.
Inability to retain key
knowledge and adequately
plan for succession * Bonus scheme in place for relevant employees based on
could business and individual objectives.
have a negative impact
on Company performance.
Our success depends on * Continuing to extend and embed our established talent
the ability to attract management framework across the Group in order to
and retain key talent engage and empower people whilst delivering results
and and managing performance.
it relies on having good
relations with
colleagues. * Assessing our current organisational competence and
There is a risk that we capability against that required to maximise current
are unable to attract and future shareholder value.
and
retain key talent, build
future leadership * Ensuring succession plans are in place for all
capability identified business critical roles, in particular
and maintain the emergency successors for all senior management roles
commitment and that these plans are reviewed every six months.
and trust of our
employees.
If we face challenges in * Developed a structured and standard approach to be
managing and maintaining applied where necessary to key individuals during
our talent pipeline in periods of uncertainty and/or organisational change
order to deliver against in order to retain top talent in business critical
our strategy, to drive roles.
competiveness and
maximise
on our operating * Implemented a process to identify and deliver
performance, programmes targeted at high potential talent in order
this could impact on our to drive competiveness and maximise operating
ability to future proof performance.
the Group and the
associated
potential for negative * Driving high performance and engagement through our
impact on shareholder performance review, development plans and career
confidence. planning process.
-------------------------- ------------------------- ---------------------------------------------------------------
Cyber Attack The increasing
digitalization * Commitment from the Board and the Executive Committee
of our business raises in support of key initiatives to ensure all existing
the importance of focus and future IT systems are secure by design, that
on strong information exposure to vulnerability is managed effectively and
security that user access is sufficiently controlled.
controls. Information is
an essential asset and
is vitally important to * Implementation and continual improvement of a group
Xchanging's business information security management system to provide
operations assurance that appropriate controls are in place to
and long-term viability. detect and prevent cyber-attacks and data leakage.
Xchanging operates in a
competitive market and
any unauthorised
disclosure
of data would
significantly
impact customer
confidence,
incur financial costs
and
damage our
competiveness.
Xchanging is committed
to maintaining and
protecting
all of the information
in accordance with its
value, sensitivity and
the risks to which it is
exposed, in a manner
consistent
with all relevant legal,
regulatory and
contractual
requirements.
Inadequate or
inefficient
security controls could
result in the theft,
disruption
destruction of assets
and
services. This would
have
a negative impact on our
key stakeholders,
associated
reputational damage and
potential for financial
implications.
-------------------------- ------------------------- ---------------------------------------------------------------
Financial risks The Group's nancial
results * Enhanced budgeting, forecasting and working capital
may be subject to and treasury controls. These controls are being
volatility enhanced by increasing the granularity, frequency and
arising from movements intensity of financial performance reviews. They are
in interest and foreign also being enhanced with the establishment of the new
exchange rates, pension SAP finance system.
asset and liability
valuations,
and changes in taxation * A rolling 12 month FX hedging programme which aims to
legislation, policy or reduce the Group's in year exposure to FX transaction
tax rates. risk.
The capital structure of
the Group includes bank
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debt that is subject to * Active management of the assets and liabilities in
leverage and interest the Group's defined benefit pension schemes.
cover
financial covenants and
other representations * Tax controls and processes to manage tax compliance
and and address changes in tax legislation and tax rates.
warranties commonly
associated
with corporate bank * Forward looking compliance against financial
debt. covenants and warranties is reviewed on a monthly
Without effective basis for a forward period of at least 12 months.
financial
controls, we could be
exposed * The capital structure of the Group is reviewed by the
to financial losses Board on a regular basis.
which
may have a significant
impact on the ability of * Investment decisions are considered within the
the business to operate. context of the impact they will have on the Group's
We must safeguard current and forecast leverage ratio.
business
assets and ensure
accuracy * The financial reporting process and control system is
and reliability of monitored and maintained through the use of internal
records control frameworks which address key financial
and financial reporting. reporting risks, including risks arising from changes
in the business or accounting standards.
* The delivery of a centrally co- ordinated ssurance
programme by the Internal Audit department that
includes key business and finance risk areas. The
findings and recommendations of each review are
reported to both management and the Audit Committee.
-------------------------- ------------------------- ---------------------------------------------------------------
Consolidated income statement for the year ended 31 December
2015
2015 2014
Adjusted Adjustments(1) Total Adjusted Adjustments(1) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ----- --------- --------------- -------- --------- --------------- ---------
Revenue 1 440.2 - 440.2 573.5 - 573.5
-------------------------- ----- --------- --------------- -------- --------- --------------- ---------
Net revenue(2) 400.5 - 400.5 406.8 - 406.8
-------------------------- ----- --------- --------------- -------- --------- --------------- ---------
Gross profit 65.3 (32.6) 32.7 69.3 (27.3) 42.0
Administrative
expenses (10.7) (63.2) (73.9) (13.5) (2.2) (15.7)
Other income 2 - 2.7 2.7 - 10.3 10.3
-------------------------- ----- --------- --------------- -------- --------- --------------- ---------
Operating profit/(loss) 1 54.6 (93.1) (38.5) 55.8 (19.2) 36.6
Finance costs (8.4) - (8.4) (5.6) - (5.6)
Finance income 0.9 - 0.9 0.7 0.6 1.3
Share of (loss)/profit
from joint venture (0.2) - (0.2) 0.2 - 0.2
Profit/(loss)
before taxation 46.9 (93.1) (46.2) 51.1 (18.6) 32.5
Taxation 3 (11.6) 5.1 (6.5) (7.6) 4.5 (3.1)
-------------------------- ----- --------- --------------- -------- --------- --------------- ---------
Profit/(loss)
for the year 35.3 (88.0) (52.7) 43.5 (14.1) 29.4
-------------------------- ----- --------- --------------- -------- --------- --------------- ---------
Attributable to:
Owners of the
parent 21.0 (89.1) (68.1) 28.9 (12.8) 16.1
Non-controlling
interests 14.3 1.1 15.4 14.6 (1.3) 13.3
-------------------------- ----- --------- --------------- -------- --------- --------------- ---------
35.3 (88.0) (52.7) 43.5 (14.1) 29.4
-------------------------- ----- --------- --------------- -------- --------- --------------- ---------
Earnings per share attributable to owners of the parent (expressed
in pence per share)
Basic earnings
per share 4 8.49 (27.55) 11.86 6.62
Diluted earnings
per share 4 8.49 (27.55) 11.69 6.52
-------------------------- ----- --------- --------------- -------- --------- --------------- ---------
1. Adjustments in 2015 and 2014 are presented in note 4.
2. Net revenue excludes principal spend on Procurement contracts
that arise from suppliers' costs that are passed on to
the customer.
Consolidated statement of comprehensive income for the year
ended 31 December 2015
2015 2014
GBPm GBPm
--------------------------------------------- ------- -------
(Loss)/profit for the year (52.7) 29.4
Items that may be reclassified to profit
or loss
Revaluation of available-for-sale financial
assets 0.1 (0.8)
Fair value movements on hedging instrument
qualifying for hedge accounting (0.4) -
Fair value movements on hedging instrument
recycled to the income statement upon
de-designation 0.7 (0.6)
Currency translation differences (2.7) 0.6
Total items that may be reclassified to
profit or loss (2.3) (0.8)
---------------------------------------------- ------- -------
Items that will not be reclassified to
profit or loss
Actuarial gains/(losses) arising from
retirement benefit obligations 1.2 (19.2)
Tax in respect of items that will not
be reclassified (0.6) 4.3
---------------------------------------------- ------- -------
Total items that will not be reclassified
to profit or loss 0.6 (14.9)
---------------------------------------------- ------- -------
Other comprehensive expense for the year (1.7) (15.7)
---------------------------------------------- ------- -------
Total comprehensive income for the year (54.4) 13.7
---------------------------------------------- ------- -------
Attributable to:
Owners of the parent (69.8) 1.5
Non-controlling interests 15.4 12.2
---------------------------------------------- ------- -------
(54.4) 13.7
--------------------------------------------- ------- -------
Consolidated cash flow statement for the year ended 31 December
2015
2015 2014
Note GBPm GBPm
--------------------------------------------------------- ----- ------- --------
Cash flows from operating activities
Cash generated from operations 12 38.1 61.1
Income tax paid (4.7) (12.4)
--------------------------------------------------------- ----- ------- --------
Net cash generated from operating activities 33.4 48.7
Cash flows from investing activities
Acquisition cost of subsidiaries net of cash acquired (12.0) (74.9)
Acquisition of equity investment - (0.6)
Purchase of property, plant and equipment (2.4) (8.3)
Proceeds from sale of property, plant and equipment - 4.7
Purchase of intangible assets 7 (33.1) (33.9)
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Pre-contract expenditure (0.5) (1.2)
Interest received 0.9 0.8
Net cash used in investing activities (47.1) (113.4)
Cash flows from financing activities
Proceeds from issue of shares 0.2 1.7
Purchase of own shares - (2.4)
Proceeds from borrowings 39.7 114.3
Transaction costs of arranged borrowings (0.4) (2.6)
Interest paid (4.8) (2.5)
Dividends paid to owners of the parent (6.8) (6.1)
Dividends paid to non-controlling interests (12.5) (11.2)
Acquisition of non-controlling interest in subsidiaries - (14.8)
Net cash generated from financing activities 15.4 76.4
--------------------------------------------------------- ----- ------- --------
Net increase in cash and cash equivalents 1.7 11.7
--------------------------------------------------------- ----- ------- --------
Cash and cash equivalents at 1 January 129.2 121.3
Effects of exchange adjustments (3.4) (3.8)
--------------------------------------------------------- ----- ------- --------
Cash and cash equivalents at 31 December 127.5 129.2
--------------------------------------------------------- ----- ------- --------
Consolidated balance sheet as at 31 December 2015
2015 2014
Note GBPm GBPm
------------------------------------------------- ----- -------- --------
Assets
Non-current assets
Goodwill 6 155.5 209.4
Other intangible assets 7 121.4 123.0
Property, plant and equipment 14.3 17.9
Investment in joint venture and associates 1.1 1.4
Available-for-sale financial assets 2.7 2.6
Trade and other receivables 3.9 6.2
Deferred income tax assets 3 35.9 35.9
------------------------------------------------- ----- -------- --------
Total non-current assets 334.8 396.4
------------------------------------------------- ----- -------- --------
Current assets
Current income tax receivable 0.7 1.2
Borrowings 9 0.8 0.6
Other financial assets 0.9 0.5
Trade and other receivables 97.7 116.6
Cash and cash equivalents 10 127.5 129.2
Total current assets 227.6 248.1
------------------------------------------------- ----- -------- --------
Total assets 562.4 644.5
------------------------------------------------- ----- -------- --------
Liabilities
Current liabilities
Trade and other payables (93.5) (141.0)
Current income tax liabilities (8.9) (4.3)
Borrowings 9 (0.1) (0.2)
Customer accounts (33.0) (34.5)
Other financial liabilities 8 (7.0) (3.2)
Provisions 14 (13.8) (18.0)
------------------------------------------------- ----- -------- --------
Total current liabilities (156.3) (201.2)
------------------------------------------------- ----- -------- --------
Non-current liabilities
Trade and other payables (5.5) (2.0)
Borrowings 9 (154.0) (113.8)
Other financial liabilities 8 - (0.7)
Deferred income tax liabilities 3 (14.0) (17.5)
Retirement benefit obligations (61.9) (67.4)
Provisions 14 (2.2) (1.9)
------------------------------------------------- ----- -------- --------
Total non-current liabilities (237.6) (203.3)
------------------------------------------------- ----- -------- --------
Total liabilities (393.9) (404.5)
------------------------------------------------- ----- -------- --------
Net assets 168.5 240.0
------------------------------------------------- ----- -------- --------
Equity attributable to owners of the parent
Ordinary shares 12.4 12.2
Share premium 111.0 111.0
Other reserves 47.9 49.6
Retained earnings (29.1) 43.8
------------------------------------------------- ----- -------- --------
Equity attributable to the owners of the parent 142.2 216.6
Non-controlling interest in equity 26.3 23.4
------------------------------------------------- ----- -------- --------
Total equity 168.5 240.0
------------------------------------------------- ----- -------- --------
Consolidated statement of changes in equity for the year ended
31 December 2015
Attributable to owners of the parent
Ordinary Share Other Retained Total Non-controlling Total
shares premium reserves earnings interest in equity
equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
At 1 January 2014 12.1 110.5 67.7 29.2 219.5 22.6 242.1
Profit for the
year - - - 16.1 16.1 13.3 29.4
Other
comprehensive
expense - - (14.6) - (14.6) (1.1) (15.7)
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
Total
comprehensive
income for the
year - - (14.6) 16.1 1.5 12.2 13.7
Share-based
payments - - - 2.7 2.7 - 2.7
Deferred tax on
share-based
payments 3 - - - (0.2) (0.2) - (0.2)
Shares issued in
respect of
employee
share-based
payments 0.1 0.5 - 1.1 1.7 - 1.7
Purchase of own
shares - - - (2.4) (2.4) - (2.4)
Subscription for
shares by
Employee Benefit
Trust - - - (0.3) (0.3) - (0.3)
Transaction with
non-controlling
interest - - (3.5) 3.7 0.2 (0.2) -
Dividends paid 5 - - - (6.1) (6.1) (11.2) (17.3)
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
Total
transactions
with owners,
recognised
directly in
equity 0.1 0.5 (3.5) (1.5) (4.4) (11.4) (15.8)
At 31 December
2014 12.2 111.0 49.6 43.8 216.6 23.4 240.0
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
(Loss)/profit for
the year - - - (68.1) (68.1) 15.4 (52.7)
Other
comprehensive
expense - - (1.7) - (1.7) - (1.7)
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
Total
comprehensive
(expense)/income
for the year - - (1.7) (68.1) (69.8) 15.4 (54.4)
Share-based
payments - - - 2.2 2.2 - 2.2
Deferred tax on
share-based
payments 3 - - - - - - -
Shares issued in
respect of
employee
share-based
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payments 0.2 - - - 0.2 - 0.2
Purchase of own
shares - - - - - - -
Subscription for
shares by
Employee Benefit
Trust - - - (0.2) (0.2) - (0.2)
Dividends paid - - - (6.8) (6.8) (12.5) (19.3)
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
Total
transactions
with owners,
recognised
directly in
equity 5 0.2 - - (4.8) (4.6) (12.5) (17.1)
At 31 December
2015 12.4 111.0 47.9 (29.1) 142.2 26.3 168.5
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
Notes to the consolidated financial statements for the year
ended 31 December 2015
The preliminary announcement for the full year ended 31 December
2015 has been prepared in accordance with the accounting policies
as disclosed in Xchanging plc's 2014 Annual Report, as updated to
take effect of any new accounting standards applicable for 2015 as
set out in Xchanging plc's 2015 Half Year Report.
The annual financial information presented in this preliminary
announcement for the year ended 31 December 2015 is based on, and
is consistent with, that in the Group's audited financial
statements for the year ended 31 December 2015, 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. The Group financial statements and this
preliminary announcement were approved by the Board of Directors on
25 February 2016.
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 2014 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 498 (2) or 498 (3) of the Companies Act
2006.
1 SEGMENTAL ANALYSIS
Management has determined the operating segments based on the
internal reporting and information presented to and reviewed by the
Board (the chief operating decision-maker for the year) on which
strategic decisions are based, resources are allocated and
performance is assessed.
During 2015, the Board considered the business as follows:
-- Business Processing Services that has two distinct components,
Insurance and Financial Services. Insurance Services provides
technology infrastructure and managed services for processing
policies and premiums as well as handling claims, to the insurance
market. It includes the workers' compensation claims processing
services business in Australia. Financial Services provides securities
processing, investment account administration and fund administration
in Germany, Italy and India for financial institutions.
-- Technology provides technology infrastructure management services,
insurance software and application management services to a range
of customers.
-- Procurement provides procurement and human resources services
to a range of customers. The Procurement segment in the final
quarter of the 2015 financial year has been split into two sections
for internal reporting; Business Processing Services - Procurement
and Technology - Procurement. This change has been in response
to the July 2015 interim statements and external shareholder
communication. For transparency and in line with the aggregation
criteria, the Procurement segment has continued to be shown as
a separate segment. For comparative purposes and consistency
with management reporting the key performance measure, net revenue
has been split for the segment for 2015 by Business Processing
Services - Procurement and Technology - Procurement.
Corporate provides the infrastructure, resources and investment
to sustain and grow the Group, including performance management,
and business management functions. Corporate is not considered an
operating segment but its numbers are presented in order to
reconcile reportable segment numbers back to the consolidated
financial statements.
Management uses net revenue and adjusted operating profit as
measures of segment performance. Interest income and expenses are
not allocated to sectors, as this type of activity is driven by the
Group treasury function, which manages the cash position of the
whole Group. Corporate costs reallocated to operating segments
include depreciation and amortisation of centrally recognised other
intangible assets, lease payments and other costs incurred
centrally on behalf of other operating segments.
The Group'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.
The segment information for the year ended 31 December 2015 is
as follows:
Subtotal
Business
Insurance Financial Processing
Services Services Services Technology Procurement Corporate Total
Year ended 31
December 2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ----------- ----------- ------------ ----------- ------------ ----------- -------
Revenue 177.1 85.1 262.2 113.6 64.4 - 440.2
-------------------- ----------- ----------- ------------ ----------- ------------ ----------- -------
Net revenue 177.1 85.1 262.2 113.6 24.7 - 400.5
-------------------- ----------- ----------- ------------ ----------- ------------ ----------- -------
Adjusted operating
profit/(loss) 53.2 7.8 61.0 14.5 (10.9) (10.0) 54.6
Adjusted operating
profit margin 30.0% 9.2% 23.3% 12.8% (44.1%) - 13.6%
-------------------- ----------- ----------- ------------ ----------- ------------ ----------- -------
For future comparability purposes the Procurement segment net
revenue of GBP24.7 million will be split post the year end 31
December 2015 with GBP8.1 million, relating to Business Processing
Services and GBP16.6 million to Technology.
The segment information for the year ended 31 December 2014 is
as follows:
Subtotal
Business
Insurance Financial Processing
Services Services Services Technology Procurement Corporate Total
Year ended 31 December
2014 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ---------- ---------- ------------ ----------- ------------ ---------- ------
Revenue 182.7 99.7 282.4 93.1 198.0 - 573.5
------------------------ ---------- ---------- ------------ ----------- ------------ ---------- ------
Net revenue 182.7 99.7 282.4 93.1 31.3 - 406.8
------------------------ ---------- ---------- ------------ ----------- ------------ ---------- ------
Adjusted operating
profit/(loss) 53.3 10.8 64.1 6.8 (2.5) (12.6) 55.8
Adjusted operating
profit margin 29.2% 10.8% 22.7% 7.3% (8.0%) - 13.7%
------------------------ ---------- ---------- ------------ ----------- ------------ ---------- ------
The depreciation and amortisation included in adjusted operating
profit is as follows:
Subtotal
Business
Insurance Financial Processing
Services Services Services Technology Procurement Corporate Total
Year ended 31 December
2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- ---------- ------------ ----------- ------------ ---------- ------
Depreciation and amortisation
2015 6.4 3.6 10.0 11.8 3.3 0.1 25.2
Depreciation and amortisation
2014 2.8 5.1 7.9 8.2 2.8 1.5 20.4
------------------------------- ---------- ---------- ------------ ----------- ------------ ---------- ------
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Reconciliation of non-GAAP adjusted operating profit to IFRS
statutory operating (loss)/profit:
2015 2014
GBPm GBPm
----------------------------------------------------------- ------- --------
Adjusted operating profit 54.6 55.8
Adjusting items:
Amortisation of intangible assets previously unrecognised
by an acquired entity (all recognised in gross profit) (6.5) (6.1)
Acquisition-related expenses (1) (12.6) (6.0)
Exceptional items (74.0) (7.1)
Operating (loss)/profit (38.5) 36.6
Net finance costs (7.5) (4.3)
Share of profit from joint venture (0.2) 0.2
Taxation (6.5) (3.1)
----------------------------------------------------------- ------- ------
(Loss)/profit for the year (52.7) 29.4
----------------------------------------------------------- ------- ------
1. Acquisition-related expenses refer to note 15.
The tables below present revenue from continuing operations by
the geographical location of customers and by category:
2015 2014
Revenue by geographical location GBPm GBPm
---------------------------------- ------ ------
United Kingdom 254.4 387.6
Germany 52.4 53.7
United States of America 44.4 32.1
Australia 28.3 37.6
Other Continental Europe 22.2 20.7
Italy 19.8 23.4
South East Asia 10.4 8.0
Rest of world 6.6 7.7
India 1.7 2.7
----------------------------------- ------ ------
Revenue 440.2 573.5
----------------------------------- ------ ------
2015 2014
Analysis of revenue by category GBPm GBPm
---------------------------------------- ------ ------
Revenue from services 407.1 547.1
Sale of goods 11.8 18.2
Revenue from sale of software licences 21.3 8.2
Revenue 440.2 573.5
----------------------------------------- ------ ------
Material customers
No one customer accounted for greater than ten per cent of the
Group's gross revenues for the year ended 31 December 2015. In the
year end 31 December 2014 revenues of GBP168.3 million,
attributable to the Procurement segment, were derived from one
customer. It was the revenue derived and costs incurred from this
single customer that contributed to the higher 2014 revenue and
cost of sales balances seen above.
No customers accounted for greater than ten per cent of the
Group's net revenues.
Information about product/service
The information to report revenue by individual product/service
was not available for this period, although the group has invested
in new finance systems which will enable such reporting in the
future.
2 EXCEPTIONAL ITEMS
2015 2014
GBPm GBPm
Exceptional (cost)/income items comprise the following:
Impairment of Procurement goodwill (59.3) -
Procurement asset impairments (5.6) -
Restructuring costs ('Split and Fix' in 2015, Group wide restructuring in 2014) (4.0) (10.3)
Procurement onerous contract provision (2.9) -
Procurement customer contract asset impairment (2.4) -
Other intangibles asset impairments (2.9) -
New South Wales workers' compensation contract 0.4 (7.1)
Lease surrender receipt and related items - 9.7
Pension curtailment 2.7 -
Insolvency trustee distribution - 0.6
Total exceptional items (74.0) (7.1)
---------------------------------------------------------------------------------- ------- -------
Included within:
- Gross profit (17.4) (17.4)
- Administrative expenses (59.3) -
- Other income 2.7 10.3
(74.0) (7.1)
--------------------------------------------------------------------------------- ------- -------
Exceptional items are those items that in the Directors' view
are required to be separately disclosed by virtue of their size or
incidence and in order to improve a reader's understanding of the
financial statements. These may include items relating to the
restructuring of a significant part of the Group, impairment
charges, items relating to acquisitions and disposals, and other
one-off events or transactions. The tax impact of the total
exceptional cost is a credit of GBP3.1 million (2014: credit GBP2.6
million).
For 2015, the Procurement sector exceptional items of GBP74.2
million are:
-- Impairment of the Procurement sector goodwill of GBP59.3
million (refer to note 6).
-- Procurement asset impairments GBP5.6 million. This is for
the MM4 software of GBP2.3 million, Logia GBP1.4 million,
Vault GBP0.6 million and GBP1.3 million of assets associated
with the onerous contract recognised at the half year (see
below).
-- Restructuring costs of GBP4.0 million incurred across the
Group for 'Split and Fix'. GBP1.9 million was specifically
recognised with regards to the French operations which are
in the process of being terminated.
-- Procurement onerous contracts provision of GBP2.9 million.
This relates to two specific contracts within the Procurement
sector, one of which was provided for at the half year 2015.
This expense is shown net of termination benefits received
of GBP1.4 million in respect of the second contract.
-- Procurement customer contract asset impairments of GBP2.4
million (refer to note 7) in relation to the MM4 business.
Exceptional items non-Procurement sector of GBP(0.2) million
are:
-- Impairment of the Netsett asset of GBP2.9 million (refer
to note 7).
-- GBP0.4 million reversal of the New South Wales workers' compensation
onerous contract provision (refer to note 14).
-- The London Processing Centre Ltd Retirement & Death Benefits
Scheme (the 'LPC Scheme'), effective from 28 February 2015
and Xchanging Defined Benefit Scheme, effective from 31 December
2015 was closed to future accrual, resulting in a net curtailment
income of GBP2.7 million.
3 TAXATION
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the income statement, except to the
extent that it relates to items recognised in other comprehensive
income or directly in equity. In this case, the associated tax is
also recognised in other comprehensive income or directly in
equity, respectively.
The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the balance sheet date
in the countries where the Company and its subsidiaries operate and
generate taxable income.
Deferred income tax is recognised, using the liability method,
on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. It is also recognised on temporary
differences arising in subsidiaries. However, deferred tax is not
recognised when:
-- It relates to the initial recognition of goodwill.
-- It relates to the initial recognition of an asset or liability
in a transaction other than a business combination that at
the time of the transaction affects neither accounting nor
taxable profit or loss.
-- It relates to a deferred income tax liability where the timing
of the reversal of the temporary difference is controlled
by the Group and it is probable that the temporary difference
will not reverse in the foreseeable future.
-- It is not probable that future taxable profit will be available
against which the temporary differences can be utilised.
Deferred income tax is determined using tax rates (and laws)
that have been enacted or substantively enacted by the balance
sheet date and are expected to apply when the related deferred
income tax asset is realised or the deferred income tax liability
is settled.
Deferred income tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a
net basis.
Income tax
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The major components of income tax expense for the years ended
31 December 2015 and 2014:
2015 2014
Consolidated income statement GBPm GBPm
------------------------------------------------------ ------ ------
Current tax:
- Current tax on profits for the year 10.5 7.5
- Adjustment in respect of prior years 0.3 (0.7)
------------------------------------------------------ ------ ------
Total current tax 10.8 6.8
Deferred tax:
- Origination and reversal of temporary differences
for the year (4.9) (3.5)
- Adjustment in respect of prior years (0.8) (0.2)
- Impact of the change in the UK tax rate 1.4 -
------------------------------------------------------ ------ ------
Total deferred tax (4.3) (3.7)
------------------------------------------------------ ------ ------
Tax charge for the year 6.5 3.1
------------------------------------------------------ ------ ------
2015 2014
Consolidated statement of comprehensive income GBPm GBPm
------------------------------------------------------ ------ ------
Current tax movement in relation to actuarial losses
on defined benefit plans 0.2 0.3
Deferred tax movement in relation to actuarial
(gains)/losses on defined benefit plans (0.8) 4.0
(0.6) 4.3
------------------------------------------------------ ------ ------
2015 2014
Consolidated statement of changes in equity GBPm GBPm
------------------------------------------------------ ------ ------
Deferred tax movement in relation to share-based
payments - (0.2)
------------------------------------------------------ ------ ------
Factors affecting the tax charge for the year
The statutory tax charge for the year is higher (2014: lower)
than the standard rate of corporation tax in the UK. The standard
rate of corporation tax in the UK changed from 21% to 20% with
effect from 1 April 2015. Accordingly, the Group's profits for this
accounting period are taxed at a blended rate of 20.25% (2014:
21.50%). The differences are explained below:
2015 2014
GBPm GBPm
----------------------------------------------------- ------- ------
(Loss)/profit before taxation (46.2) 32.5
----------------------------------------------------- ------- ------
(Loss)/profit before tax multiplied by the standard
rate of corporation tax in the UK of 20.25% (2014:
21.5%) (9.4) 7.0
Changes in tax rates 1.4 -
Items not deductible for tax purposes 14.8 1.5
Unutilised tax losses in current year 0.3 0.1
Temporary differences not previously recognised - (0.7)
Adjustments for tax in respect of prior years (0.5) (0.9)
Non-taxable income (0.9) (1.1)
Brought forward losses not previously recognised (0.1) (3.0)
Difference on foreign tax rates 0.9 0.2
Tax charge for the year reported in the income
statement 6.5 3.1
----------------------------------------------------- ------- ------
Deferred tax
The Finance (No 2) Act 2015, that was substantively enacted on
18 November 2015, reduced the standard rate of corporation tax in
the UK from 20% to 19% with effect from 1 April 2017 and then from
19% to 18% with effect from 1 April 2020. Accordingly deferred tax
is calculated in full on temporary differences under the liability
method using the tax rate arising when the temporary difference is
expected to reverse in the UK and at the relevant local statutory
rates for differences arising in other countries.
Deferred income tax assets and liabilities are attributable to
the following items:
Consolidated balance Consolidated income
sheet statement
2015 2014 2015 2014
GBPm GBPm GBPm GBPm
-------------------------------- ----------- ---------- ---------- ----------
Deferred tax assets
Retirement benefit obligation 11.3 13.3 (1.2) (0.4)
Tax losses 10.0 7.3 3.2 2.7
Decelerated tax depreciation 4.0 4.2 (0.1) -
Share-based payments 1.5 1.6 (0.1) 0.1
Other 9.1 9.5 2.5 1.3
Total deferred tax assets 35.9 35.9
-------------------------------- ----------- ----------
Recoverable within 1 year 10.6 9.2
Recoverable after more
than 1 year 25.3 26.7
-------------------------------- ----------- ----------
35.9 35.9
-------------------------------- ----------- ----------
Deferred tax liabilities
Accelerated tax depreciation (0.1) (0.1)
Other(1) (13.9) (17.4)
-------------------------------- ----------- ----------
Total deferred tax liabilities (14.0) (17.5)
-------------------------------- ----------- ----------
Arising within 1 year (5.7) (7.4)
Arising after more than
1 year (8.3) (10.1)
-------------------------------- ----------- ----------
(14.0) (17.5)
-------------------------------- ----------- ----------
Net deferred tax asset 21.9 18.4
-------------------------------- ----------- ---------- ---------- ----------
Net credit to tax expense 4.3 3.7
-------------------------------- ----------- ---------- ---------- ----------
1. Included within other is deferred tax on amortisation of
intangible assets and other miscellaneous items.
Tax losses arising in the current and previous years from
continuing operations, total an estimated carried forward amount of
GBP52.9 million in the USA (2014: GBP46.8 million), GBP12.6 million
in Italy (2014: GBP15.0 million), GBP8.6 million in the UK (2014:
GBP0.9 million) and GBP8.3 million in other tax jurisdictions
(2014: GBP5.0 million). USA losses expire 20 years from the year in
which they arise. Losses arising in Italy and the UK can be carried
forward indefinitely. The principal deferred tax assets recognised
for losses are GBP5.0 million (2014: GBP3.0 million) in respect of
the USA, GBP3.2 million (2014: GBP4.1 million) in respect of Italy
and GBP1.7 million (2014 GBP0.2 million) in respect of the UK. The
Group has not recognised deferred tax assets of GBP16.0 million
(2014: GBP14.7 million) that principally arise on losses in certain
businesses in the USA. The utilisation of these losses will be
reviewed in line with future tax planning opportunities on an
ongoing basis.
4 EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit
attributable to owners of the parent by the weighted average number
of ordinary shares of the Company.
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 three types of potential
dilutive ordinary shares: share options, share awards under the
Performance Share Plan and other share awards.
Statutory
Weighted average Adjusted earnings Statutory earnings per
number of shares Adjusted earnings per share earnings share
thousands GBPm pence GBPm pence
------------------- ----------------- ------------------ ------------------ ------------------ ------------------
Basic earnings per
share:
- 31 December
2015 247,010 21.0 8.49 (68.1) (27.55)
- 31 December
2014 243,482 28.9 11.86 16.1 6.62
Diluted earnings
per share:
- 31 December
2015 247,010 21.0 8.49 (68.1) (27.55)
- 31 December
2014 247,155 28.9 11.69 16.1 6.52
------------------- ----------------- ------------------ ------------------ ------------------ ------------------
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The following reflects the share data used in the basic and
diluted earnings per share calculations:
2015 2014
Thousands Thousands
--------------------------------------------------------------------------- ---------- ----------
Weighted average number of ordinary shares for basic earnings per share 247,010 243,482
Dilutive potential ordinary shares:
- Employee share options - 304
- Awards under the Performance Share Plan - 3,336
- Share awards - 33
Weighted average number of ordinary shares for diluted earnings per share 247,010 247,155
---------------------------------------------------------------------------- ---------- ----------
The share awards during the year have not diluted the weighted
average number of ordinary shares for diluted earnings per
share.
Adjusted basic and diluted earnings per share
Adjusted earnings per share values are disclosed to provide a
better understanding of the underlying trading performance of the
Group. The adjusted value is in line with the KPIs as used to
measure the Group's performance in 2015.
The adjusted earnings per share figures are calculated based on
the Company's share of adjusted profit for the year, divided by the
basic and diluted weighted average number of shares as stated
above.
The owners of the parent's share of adjusted profit for the year
is calculated as follows:
2015 2014
GBPm GBPm
--------------------------------------------------------------------------------- ------- ------
Profit for the year net of tax attributable to owners of the parent (68.1) 16.1
Exceptional items 74.0 7.1
Acquisition-related expenses 12.6 6.0
Amortisation of intangible assets previously unrecognised by an acquired entity 6.5 6.1
Imputed interest and fair value adjustments on put options - (0.6)
Non-controlling interests' share of adjustments 1.1 (1.3)
Tax on adjusting items (5.1) (4.5)
--------------------------------------------------------------------------------- ------- ------
Adjusted profit for the year net of tax attributable to owners of the parent 21.0 28.9
--------------------------------------------------------------------------------- ------- ------
5 DIVIDENDS PAYABLE
Dividend distributions to the Company's shareholders are
recognised as a liability in the Group's financial statements in
the period in which the dividends are approved by the Company's
shareholders.
No dividend has been declared for the year ended 31 December
2015. A dividend of 2.75 pence per share in respect of the year
ended 31 December 2014, amounting to a total dividend of
GBP6,804,085, was paid on 22 May 2015 and is recorded in these
financial statements.
6 GOODWILL
Goodwill arises from the purchase of subsidiary undertakings and
represents the excess of the fair value of the consideration paid
over the fair value of the Group's interest in net identifiable
assets of the acquiree and the fair value of the non-controlling
interest in the acquiree. After initial recognition, goodwill is
stated at cost less any accumulated impairment losses.
Goodwill is allocated to the Group's cash generating units
('CGUs') being the lowest level at which assets generate separately
identifiable cash inflows independent of the cash inflows of other
assets or groups of assets.
Goodwill impairment reviews are undertaken annually or, more
frequently if events or changes in circumstances indicate a
potential impairment. The carrying value of goodwill is compared to
the recoverable amount, which is the higher of value-in-use and the
fair value less costs to sell. Any impairment would be recognised
immediately as an expense and would not be subsequently
reversed.
Note 2015 2014
GBPm GBPm
---------------------- ----- ------ ------
Cost
At 1 January 310.2 269.2
Business combination 15 5.4 38.4
Exchange adjustments (0.4) 2.6
---------------------- ----- ------ ------
At 31 December 315.2 310.2
---------------------- ----- ------ ------
Aggregate impairment
At 1 January (100.8) (98.6)
Impairment charge(1) 2 (59.3) -
Exchange adjustments 0.4 (2.2)
---------------------- -------- --------
At 31 December (159.7) (100.8)
Net book amount
At 31 December 155.5 209.4
---------------------- -------- --------
1. The impairment charge of GBP59.3 million is recognised in the
income statement within adjusting administrative expenses.
An analysis of goodwill and adjusted operating profit by
operating segment is as follows:
Goodwill Adjusted operating
profit
------------- ------ ------------ ----------------------------- ------ ---------- ------ --------------------
Impairment Foreign
Business charge currency
2014 combination Disposal/reallocation movements 2015 2015 2014
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------ ------------ ---------------------- ------------- ---------- ------ --------- ---------
Insurance
Services 36.1 - - - (0.1) 36.0 53.2 53.3
Financial
Services 40.1 - - - (1.5) 38.6 7.8 10.8
------ ------------ ---------------------- ------------- ---------- ------ --------- ---------
Business
Processing
Services 76.2 - - - (1.6) 74.6 61.0 64.1
Technology 79.1 0.8 - - 1.0 80.9 14.5 6.8
Procurement 54.1 4.6 - (59.3) 0.6 - (10.9) (2.5)
------------- ------ ------------ ---------------------- ------------- ---------- ------ --------- ---------
209.4 5.4 - (59.3) - 155.5 64.6 68.4
------------- ------ ------------ ---------------------- ------------- ---------- ------ --------- ---------
Impairment testing of goodwill
The key assumptions applied in the impairment testing of
goodwill as at 31 December 2015 are set out in the table below. All
margins are calculated using net revenue and adjusted operating
profit.
Weighted average Extrapolated
Operating margin margin Operating margin future growth Pre-tax discount
range growth rate rate rate
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Insurance Services 30%-33% 32% 2% 1% 15%
Financial Services 6%-9% 8% (3%) 1% 14%
Technology 13%-14% 14% 2% 1% 13%
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
The assumptions used in the Procurement value-in-use
calculations gave an operating margin loss of 11%-44%, and hence a
negative value-in-use for the sector resulting in the full carrying
value of the Procurement sector goodwill being impaired.
The recoverable amounts of all CGUs have been determined based
on value-in-use calculations using pre-tax cash flow projections
based on budgets approved by the management of the CGU and the
Board. The budgets cover a one year period, as well as cash flows
for years two, three and four using management's expectations of
sales growth, operating costs, adjusted operating profit and margin
based on past experience, and expectations regarding future
performance and profitability for each individual CGU. Financial
Services value-in-use calculation has been prepared based on
budgets covering a two year period as well as cash flows for years
three and four using management's expectations as above due to the
ongoing projects within the sector.
A terminal value has been calculated using a nil growth rate
assumption for all CGUs.
Sensitivity analysis
The carrying value of goodwill is most sensitive to changes in
average growth rates as described below.
Insurance Services
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This sector is consistently profitable and cash generative. It
is considered unlikely that there could be reasonable changes to
key assumptions sufficient to give rise to an impairment at an
individual CGU level.
Financial Services
The acquisition of AGI's holding in Fondsdepot Bank during 2014
has reduced some risk within FdB. Additionally the current
digitalisation project and restructuring of the business has
positively impacted the future cash flows within the model. Albeit,
there is a lag between recognising the costs of these projects and
realising the benefits and hence the initial negative growth of the
operating margin shown in the table above.
The performance of Xchanging Italy has remained level during
2015, following the successful merger of Kedrios and AR Enterprise
S.r.l. in 2013, and the realisation of synergies within the
combined business.
Sensitivities have been performed in conjunction with the sales
targets and cost reduction set out within the 2016 budget business
plan, should these not be reached sufficient headroom would
remain.
Technology
The acquisition of the businesses acquired from Agencyport and
Total Objects Ltd during 2014 has increased the customer base and
product offering of the insurance software business. A number of
new Xuber contracts were secured during the year and further new
contracts are in the pipeline for 2016. It is considered unlikely
that there could be reasonable changes to key assumptions
sufficient to give rise to an impairment.
Procurement
The weak performance of the traditional outsourcing business
combined with underperformance of a number of procurement contracts
lead to an impairment charge of GBP59.3 million being recognised
during the period for the Procurement CGU.
7 OTHER INTANGIBLE ASSETS
Research and development
Research expenditure is expensed as incurred. Development
expenditure is capitalised when it can be reliably measured,
technically feasible, the resources are available to complete the
project, there is an ability to use or sell the asset and the
future economic benefits are expected.
Assets in the course of development are not amortised until they
are ready to be used or sold. These assets relate to software being
developed by the Group.
Development costs represent the cost of process and system
designs that substantially improved the business. Once capitalised
these assets are amortised and assessed for impairment in
accordance with IAS 38 'Intangible Assets'.
Software costs and contractual customer relationships
Software assets acquired as part of a business combination are
fair valued on acquisition in accordance with IFRS 3, 'Business
Combinations' then subsequently amortised in accordance with IAS 38
'Intangible Assets'. Contractual customer relationships are
capitalised on acquisition where they meet the criteria for
recognition under IFRS 3, 'Business Combinations', and IAS 38
'Intangible Assets'.
Amortisation is calculated so as to write off the cost of the
assets, less their estimated residual values, on a straight-line
basis over the expected useful economic lives of the assets
concerned. Amortisation is calculated over the following
periods:
Software 3 to 7 years
Development costs 5 years or over the life of the
related contract
Customer contractual relationships 5 to 10 years
Software
Customer assets in
contractual the course Development
Software relationships of development costs Total
-------------------------- --------- --------------- ---------------- ------------ -------
GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January 2014 61.1 37.1 1.5 14.3 114.0
Business combination
(note 15) 15.6 37.0 - - 52.6
Additions - internal 6.8 - 14.3 - 21.1
Additions - external 8.9 - 6.8 - 15.7
Transfers from property,
plant and equipment - - 2.1 - 2.1
Transfer to / (from)
assets in the course
of development 1.5 - (1.5) - -
Disposals/write-offs (3.3) - (4.1) - (7.4)
Exchange adjustments (1.8) (1.0) (0.1) - (2.9)
-------------------------- --------- --------------- ---------------- ------------ -------
At 31 December 2014 88.8 73.1 19.0 14.3 195.2
Business combination
(note 15) - - - - -
Additions - internal 6.2 - 6.4 - 12.6
Additions - external 3.0 - 17.4 - 20.4
Transfer to/(from)
assets in the course
of development 1.6 - (1.6) - -
Disposals/write-offs (12.7) - - - (12.7)
Exchange adjustments (1.6) (1.2) - - (2.8)
At 31 December 2015 85.3 71.9 41.2 14.3 212.7
-------------------------- --------- --------------- ---------------- ------------ -------
Accumulated amortisation
At 1 January 2014 24.3 20.0 - 13.7 58.0
Charge for the year 12.9 6.1 - 0.2 19.2
Disposals/write-offs (3.1) - - - (3.1)
Exchange adjustments (1.4) (0.5) - - (1.9)
-------------------------- --------- --------------- ---------------- ------------ -------
At 31 December 2014 32.7 25.6 - 13.9 72.2
Charge for the year 17.2 6.5 - 0.2 23.9
Impairment charge
for the year 8.5 2.4 - - 10.9
Disposals/write-offs (12.7) - - - (12.7)
Exchange adjustments (2.3) (0.7) - - (3.0)
-------------------------- --------- --------------- ---------------- ------------ -------
At 31 December 2015 43.4 33.8 - 14.1 91.3
-------------------------- --------- --------------- ---------------- ------------ -------
Net book amount
At 1 January 2014 36.8 17.1 1.5 0.6 56.0
At 31 December 2014 56.1 47.5 19.0 0.4 123.0
-------------------------- --------- --------------- ---------------- ------------ -------
At 31 December 2015 41.9 38.1 41.2 0.2 121.4
-------------------------- --------- --------------- ---------------- ------------ -------
Amortisation expense of GBP23.9 million (2014: GBP19.2 million)
has been charged through gross profit and GBPnil (2014: GBPnil)
through administrative expenses.
In 2015, all of the customer contractual relationship
amortisation charge of GBP6.5 million (2014: GBP6.1 million)
relates to assets previously unrecognised by an acquired
entity.
Significant individual assets, which are included in the
balances above, are as follows:
Intangible assets impaired during the year
-- During the year the assets relating to the Procurement business
were assessed for impairment given the Procurement goodwill
write-off and the 'Split and Fix' restructuring plan. As
a result of this assessment GBP5.6 million of Procurement
assets were impaired as they were no longer needed to support
the Procurement business. This is for the MM4 software of
GBP2.3 million, the Logia IT platform of GBP1.4 million,
the Vault IT platform of GBP0.6 million and GBP1.3 million
of assets associated with the onerous contract recognised
at the half year.
-- GBP2.4 million of MM4 customer contracts assets were impaired
during the year due to the business not achieving the levels
of growth expected.
-- Netsett is the Group's internally generated, global (re)insurance
and accounting net settlement service. It is a netting and
settlement solution designed to deliver operational efficiency,
transparency, and capital efficiency benefits to participants
through the implementation of a centralised, multi-lateral,
multi-currency engine platform for premium and claims flows
within and between global cedents, brokers and carriers.
The asset was completed in 2014 and has a carrying amount
as at 31 December 2015 of GBP2.9 million (2014: GBP4.0 million).
Impairment testing has been performed and a conclusion was
reached to impair the remaining book value, GBP2.9 million.
This assessment was reached because, despite the potential
for the service to be a significant revenue generator in
the long term, there is insufficient certainty of the timing
and quantum of cash inflows at present.
Software
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The significant software assets have been described below:
-- Xuber Enterprise Suite is the Group's global insurance application
platform, and provides support for the full insurance cycle
including quotation, claim notification as well as payment
and settlement. The asset has a carrying amount as at 31
December 2015 of GBP22.7 million (2014: GBP24.0 million)
and is made up of several components. Components are amortised
over five years after they are complete.
-- Insurance software acquired with the businesses acquired
from Agencyport relating to the 'OPENSuite' of products.
The asset has a carrying amount as at 31 December 2015 of
GBP11.5 million, and is being amortised to 2020.
-- Insurance software acquired with Total Objects which provides
services to Insurance brokers, Reinsurers and managing general
agents. The asset has a carrying amount as at 31 December
2015 of GBP2.2 million, and is being amortised to 2021.
-- Funds administration processing platforms, including costs
of migration of new customers on to the platform. The asset
has a carrying amount as at 31 December 2015 of GBP6.1 million
(2014: GBP1.3 million), and is made up of several components
being amortised up to 2019.
-- IT platform and software acquired with AR relates to a comprehensive
information technology (IT) solution for the securities brokerage
and asset management industry in Italy. The asset has a carrying
amount as at 31 December 2015 of GBP1.1 million (2014: GBP2.0
million), and is being amortised to 2017.
-- Workday is the Group's new HR system that supports HR services
including payroll processes, talent and performance management,
and organisational changes. The asset has a carrying value
as at 31 December 2015 of GBP3.3 million (2014: GBP3.9 million),
and is being amortised to 2019.
-- The Finance Transformation Programme ('FTP') delivers a common
SAP platform, a common set of finance business processes,
within a common organisation structure aligned with the new
global finance shared service model. The asset has a carrying
value as at 31 December 2015 of GBP9.2 million, and will
be amortised over a 5 year period from the date it is brought
into use (January 2016).
-- Within the Insurance sector there is a new software in development
to enable the XIS bureau to process messages under the ACCORD
global standard for Insurance premium messages, as part of
the London Insurance Market's Central Services Refresh Programme
('CSRP'). This asset has a carrying amount at 31 December
2015 of GBP8.1 million.
-- The Insurance Market Repository (IMR) software under construction
is an investment in replacing, upgrading and introducing
new IT applications and infrastructure. This is part of the
group's Platform Refresh Programme. This asset has a carrying
amount at 31 December 2015 of GBP6.1 million.
Customer contractual relationships
-- Contractual relationships acquired as part of the acquisition
of the businesses acquired from Agencyport. These assets
have a carrying amount at 31 December 2015 of GBP27.3 million
(2014: GBP30.5 million) and are being amortised to 2023.
-- Contractual relationships acquired as part of the acquisition
of Total Objects. These assets have a carrying amount at
31 December 2015 of GBP3.0 million (2014: GBP3.8 million)
and are being amortised to 2019.
-- Open architecture customer contracts relating to investment
fund administration. The asset has a carrying amount as at
31 December 2015 of GBP3.6 million (2014: GBP4.8 million)
and are being amortised to 2019.
-- Brokerage and Asset management customers acquired as part
of the acquisition of AR Enterprise in 2012. These assets
have a carrying amount of GBP4.2 million as at 31 December
2015 (2014: GBP5.1 million) and are being amortised to 2022.
8 OTHER FINANCIAL LIABILITIES
2015 2014
GBPm GBPm
----------------------------------------------- ----- -----
Current other financial liabilities
Deferred consideration 6.0 3.2
Derivative cash flow hedge 1.0 -
Total current other financial liabilities 7.0 3.2
------------------------------------------------ ----- -----
Non-current other financial liabilities
Deferred consideration - 0.7
Total non-current other financial liabilities - 0.7
------------------------------------------------ ----- -----
The carrying amounts of the Group's other financial liabilities
are denominated in the following currencies:
2015 2014
GBPm GBPm
------------ ----- -----
Sterling 3.8 1.5
US Dollars 2.4 -
Euros 0.8 2.4
7.0 3.9
------------ ----- -----
Deferred consideration
2015 2014
GBPm GBPm
------------------------------------------ ----- -----
Current deferred consideration
Total Objects 3.8 0.8
Spikes Cavell 1.2 -
MM4 0.9 -
AR Enterprises S.r.l. 0.1 2.4
Total current deferred consideration 6.0 3.2
------------------------------------------- ----- -----
Non-current deferred consideration
Total Objects Ltd - 0.7
Total non-current deferred consideration - 0.7
------------------------------------------- ----- -----
The outstanding balances comprise fixed deferred consideration
and contingent deferred consideration. Contingent deferred
consideration is treated as post-acquisition remuneration and has
been included in this table for completeness.
9 BORROWINGS
2015 2014
GBPm GBPm
-------------------------------------------- ------ ------
Current borrowings
Presented in current assets:
- Unamortised loan fees (0.8) (0.6)
Presented in current liabilities:
- Finance lease liabilities 0.1 0.2
Total current borrowings (0.7) (0.4)
--------------------------------------------- ------ ------
Non-current borrowings
Bank loans and revolving credit facilities 155.0 115.0
Unamortised loan fees (1.2) (1.5)
Finance lease liabilities 0.2 0.3
--------------------------------------------- ------ ------
Total non-current borrowings 154.0 113.8
--------------------------------------------- ------ ------
The carrying amounts of the Group's borrowings are denominated
in the following currencies:
2015 2014
GBPm GBPm
--------------- ------ ------
Sterling 153.0 113.1
Indian Rupees 0.3 0.3
153.3 113.4
--------------- ------ ------
Bank loans and revolving credit facilities
The Group maintains committed credit facilities to ensure that
it has sufficient liquidity to maintain its ongoing operations. The
Group sources its debt funding in the UK through a revolving credit
facility that is provided by a syndicate of banks.
In 2015 the Group increased the aggregate size of its revolving
credit facility by GBP25.0 million to GBP190.0 million. The margin
payable on funds drawn under the facility is set at a range between
200 and 350 basis points depending on the prevailing leverage
ratio. Security is provided in the form of a subsidiary cross
guarantee arrangement and the facility is subject to leverage and
interest cover financial covenants. It also contains
representations and warranties commonly associated with corporate
bank debt.
GBP155.0 million was drawn as cash under the facility as at 31
December 2015 (2014: GBP115.0) and a further GBP0.8 million (2014:
GBP0.8 million) was utilised through guarantees. At the year end
date the Group had GBP34.2 million (2014: GBP49.2 million) of
committed headroom available.
In addition to this facility, a working capital facility of
INR330.0 million (GBP3.4 million) is provided to Xchanging
Technology Services India Private Limited ('XTSI'), a wholly owned
subsidiary of the Group. The facility is secured by way of a charge
on the current assets of XTSI and is subject to a corporate
guarantee. The working capital facility is uncommitted and renewed
on an annual basis. As at 31 December 2015, the cash amount drawn
under the facility was GBPnil (2014: GBPnil).
The Group has a GBP10.0 million (2014: GBP10.0 million)
uncommitted overdraft facility linked to its UK notional cash
pooling arrangement.
The Group has the following undrawn committed and uncommitted
borrowing facilities available:
2015 2014
GBPm GBPm
-------------------------------------------- ------ ------
Expiring within one year 13.2 13.1
Expiring later than two years but not more
than five years 34.2 51.1
-------------------------------------------- ------ ------
47.4 64.2
-------------------------------------------- ------ ------
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The fair value of the Group's debt is assumed to be equal to its
carrying value as all drawn debt is subject to floating rate
interest.
Finance leases
The finance leases held by the Group relate to leased assets
including computer equipment and other items classified as fixtures
and fittings.
The gross finance lease obligation and present value of finance
lease liabilities are as follows:
2015 2014
GBPm GBPm
------------------------------------------------ ----- -----
Expiring within one year 0.1 0.2
Expiring later than one year but not more than
five years 0.2 0.3
Gross finance lease obligation 0.3 0.5
Present value of future finance leases 0.3 0.5
------------------------------------------------- ----- -----
10 CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand, demand deposits,
short-term highly liquid investments that are readily convertible
to cash and are subject to minimal risk of changes in value.
2015 2014
GBPm GBPm
-------------------------------------------------------------- ------ ------
Cash at bank and in hand - held in Enterprise Partnerships 18.7 23.5
Cash at bank and in hand - held in Xchanging Solutions 5.4 2.8
Cash at bank and in hand - held in wholly owned subsidiaries 80.0 89.8
--------------------------------------------------------------- ------ ------
Cash at bank and in hand 104.1 116.1
Short-term deposits - held in Enterprise Partnerships 0.8 5.1
Short-term deposits - held in Xchanging Solutions 5.9 5.0
Short-term deposits - held in wholly owned subsidiaries 16.7 3.0
--------------------------------------------------------------- ------ ------
Cash and cash equivalents 127.5 129.2
--------------------------------------------------------------- ------ ------
Xchanging receives cash from Enterprise Partnerships through
contractual licence fees and dividends. At 31 December 2015 a total
of GBP6.2 million (2014: GBP6.5 million) was due from Enterprise
Partnerships to Xchanging as accrued but unpaid licence fees.
Enterprise Partnerships operate a 100% profit distribution policy
and GBP15.2 million (2014: GBP13.2 million) of profit earned in
2015 will be distributed to Xchanging in 2016.
Included in the cash balance held by wholly owned subsidiaries
are GBP33.0 million (2014: GBP34.5 million) of customer cash
deposits held at Fondsdepot Bank. An equal customer cash accounts
liability is recognised on the balance sheet.
GBP0.4 million (2014: GBP0.3 million) of the Group's cash is
held as collateral against various bank guarantees.
The fair values of short-term loan deposits with a maturity of
less than one year are assumed to approximate to their book
values.
11 NET CASH
The consolidated movement in net cash for the year is:
2015 2014
GBPm GBPm
-------------------------------------------------------- ------- --------
Increase in cash and cash equivalents in the
year 1.7 11.7
Movement in bank loans and revolving credit facilities (40.0) (115.0)
Movement on finance lease liabilities and other
debt 0.2 0.7
Change in net cash resulting from cash flows (38.1) (102.6)
Exchange movements (3.4) (3.8)
-------------------------------------------------------- ------- --------
Movement in net cash in the year (41.5) (106.4)
-------------------------------------------------------- ------- --------
Net cash at the beginning of the year 13.7 120.1
-------------------------------------------------------- ------- --------
Net cash at the end of the year (27.8) 13.7
-------------------------------------------------------- ------- --------
Movement in net cash
Cash and Bank loans Finance Total
cash equivalents and revolving lease
credit facilities liabilities
GBPm GBPm GBPm GBPm
-------------------- ------------------ ------------------- ------------- --------
1 January 2014 121.3 - (1.2) 120.1
Cash flow 8.4 (115.0) 0.7 (105.9)
Cash acquired 3.3 - - 3.3
Exchange movements (3.8) - - (3.8)
---------------------- ------------------ ------------------- ------------- --------
31 December 2014 129.2 (115.0) (0.5) 13.7
---------------------- ------------------ ------------------- ------------- --------
Cash flow 1.8 (40.0) 0.2 (38.0)
Cash acquired (0.1) - - (0.1)
Exchange movements (3.4) - - (3.4)
---------------------- ------------------ ------------------- ------------- --------
31 December 2015 127.5 (155.0) (0.3) (27.8)
---------------------- ------------------ ------------------- ------------- --------
12 CASH GENERATED FROM OPERATIONS
2015 2014
Note GBPm GBPm
--------------------------------------------------------------------------------- ----- -------- -------
(Loss)/profit before tax (46.2) 32.5
Net finance income 7.5 4.3
Loss/(profit) from joint venture 0.2 (0.2)
--------------------------------------------------------------------------------- ----- -------- -------
Operating (loss)/profit (38.5) 36.6
Adjustment for non-cash items:
- employee share-based payment 2.2 2.7
- depreciation on PP&E 5.9 5.9
- amortisation of other intangibles 23.9 19.2
- amortisation of pre-contract costs 1.7 1.4
- profit on disposal of property, plant and equipment - (0.5)
- New South Wales workers' compensation contract (0.4) 7.1
- expense relating to the total amount payable to the sellers of MM4 15 3.0 2.7
- expense relating to the total amount payable to the sellers of Total Objects 15 3.0 -
- expense relating to the total amount payable to the sellers of Spikes Cavell 15 1.2 -
- pension curtailment 2 (2.7) -
- other non-cash items(1) 72.3 -
110.1 75.1
Changes in working capital (excluding the effects of business combinations):
- decrease in trade and other receivables 16.1 18.8
- decrease in trade and other payables (39.4) (27.4)
- decrease in retirement benefit obligations (3.7) (6.2)
- (decrease)/increase in provisions (6.5) 0.8
Cash generated from operations 38.1 61.1
--------------------------------------------------------------------------------- ----- -------- -------
1. Including GBP59.3 million goodwill impairment, GBP10.9 million asset impairments.
The change in working capital in trade and other payables in
2015 includes a working capital outflow of GBP18.0 million due to
the exit of a large Procurement contract.
13 FINANCIAL COMMITMENTS AND CONTINGENT LIABILITIES
Leases
Rent costs and lease incentives are charged to the income
statement on a straight-line basis over the lease term.
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At 31 December, future aggregate minimum lease payments under
non-cancellable operating leases were as follows:
2015 2014
GBPm GBPm
-------------------------------------------------- ----- -----
Within one year 6.1 6.8
Later than one year but not more than five years 19.4 18.0
Later than five years 20.8 24.1
--------------------------------------------------- ----- -----
46.3 48.9
-------------------------------------------------- ----- -----
The Group's most significant leases are those of the premises in
Basildon, London, Chatham, Gurgaon, Hof, Melbourne, Milan,
Folkstone, Chicago, Manesar, Chennai, Paris, Kuala Lumpar,
Bangalore, Fulwood, Singapore and Sydney.
The lease expiry dates for the above locations are:
Basildon Oct-29
London Nov-28
Chatham Oct-24
Gurgaon A Mar-23
Gurgaon B Nov-22
Hof Dec-21
Melbourne Jun-21
Milan Apr-19
Folkestone Dec-18
Chicago Aug-18
Manesar Mar-18
Chennai Jan-18
Paris Aug-17
Kuala Lumpur Nov-16
Bangalore Aug-16
Fulwood Jun-16
Singapore Mar-16(1)
Sydney Feb-16(1)
1. Lease contracts are currently in negotiation for renewal.
Contingent liabilities
In the ordinary course of business, the Group is subject to
legal proceedings, claims, and litigation, and is currently a
defendant in a claim alleging a breach of warranties in the US. In
2009 the Group acquired 75% of the Indian Company, Cambridge
Solutions Limited ('CSL') (now called Xchanging Solutions Limited).
The claim in question relates to a contract that was awarded to an
American subsidiary of CSL in 2006 and was subsequently sold by
that American subsidiary, prior to the acquisition of CSL by the
Group. Based on the facts available to date and legal advice
thereon, the Company believes it is not probable that the claim
will be successful or that there will be a material adverse impact
on the Group. Fact discovery and proceedings are ongoing in this
matter.
The Group has given certain indemnities and warranties in the
course of disposing and acquiring of businesses and has given
guarantees for operational performance of its subsidiaries for
contracts entered into in the ordinary course of trading. The Group
does not believe that any liability in respect of these guarantees
is likely to have a material effect on the Group's financial
position.
Bank guarantees
The Group has provided GBP1.7 million (2014: GBP2.7 million) of
bank guarantees in respect of non-performance of its obligations
under contracts entered into in the ordinary course of business and
leased property deposits. The guarantees are issued under separate
guarantee facilities of which GBP0.4 million (2014: GBP0.3 million)
are collateralised with cash from the operating business for which
they are issued.
Corporate guarantees
The Group has put in place guarantees covering contributions and
deficit recovery payments to two of its pension schemes as part of
agreements reached with each scheme's trustees. A GBP30.0 million
guarantee has been provided to the trustees of the Rebus pension
scheme by Xchanging plc. A guarantee provided by Xchanging Ins-Sure
Holdings ltd to the LPC scheme trustees decreases in line with
deficit contributions paid to the scheme under the agreed Schedule
of Contributions. The value of the LPC scheme guarantee was GBP5.5
million as at 31 December 2015 (2014: GBP6.1 million).
14 PROVISIONS
Provisions are recognised when a present legal or constructive
obligation exists as the result of a past event, it is probable
that this will result in an outflow of resources and the amount of
which can be reliably estimated.
Onerous Employee
leases Litigation related
and contracts Restructuring provision provisions Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- --------------- -------------- ----------- ------------ ------ -------
At 1 January
2015 1.6 8.9 4.4 4.4 0.6 19.9
Charged/(credited)
to the income
statement:
- Provided in
the year 3.0 4.6 - 1.1 0.4 9.1
- Released in
the year - (0.5) - - - (0.5)
Used in the year (2.5) (7.4) (0.7) (1.1) (0.4) (12.1)
Exchange adjustments (0.1) (0.3) - - - (0.4)
----------------------- --------------- -------------- ----------- ------------ ------ -------
At 31 December
2015 2.0 5.3 3.7 4.4 0.6 16.0
----------------------- --------------- -------------- ----------- ------------ ------ -------
Provisions have been analysed between current and non-current as
follows:
2015 2014
GBPm GBPm
Current 13.8 18.0
Non-current 2.2 1.9
16.0 19.9
Onerous leases and contracts
The 'Split and Fix' onerous contract provision was booked during
the year and started to be used.
Restructuring
The additional provision noted above is attributable to the
Procurement business from the 'Split and Fix'. The GBP7.4 million
used in the year was predominantly the 2014/2015 Group wide
restructuring provision. The NSW provision was used in the year
with a GBP0.4 million release.
Litigation provision
During the year, GBP0.7 million has been used in relation to the
legal case mentioned above.
Employee-related provisions
The employee-related provision includes gratuity provisions
(required by Indian law), long service provisions (required in
Australia) and compensated absences. Long service awards and
compensated absences are based on actuarial valuations, which are
updated at each reporting date. The gratuity provisions as well as
the early and part-time retirement provision both have an element
of uncertainty surrounding their amount and timing of
utilisation.
15 ACQUISITIONS
Business combinations are accounted for using the acquisition
accounting method, from the date at which control passes to the
Group. The consideration transferred for the acquisition of a
business is the fair value of the assets transferred, the
liabilities incurred to the former owner of the acquiree and the
equity interests issued by the Group. The consideration transferred
includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Subsequent changes in the
fair value of contingent consideration are recognised in profit and
loss for the year. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at acquisition date.
(i) Spikes Cavell Analytic Limited
On 25 February 2015, the Group acquired 100% of the share
capital of Spikes Cavell Analytic Limited ('Spikes Cavell'), a
British company providing spend analytics technology and services
mainly to public sector institutions in the UK and higher education
authorities in the US, but also increasingly to the private sector.
Based in Newbury (UK) and Virginia (US) and with 35 employees,
Spikes Cavell brings to Xchanging a portfolio of c. 60 existing
lead customers, some of which represent groups. The acquisition
extends Xchanging's strategy to differentiate its products and
services through technology-enablement. The Spikes Cavell
technology will augment our existing MM4 platform, enabling MM4 to
achieve 'full-suite status' in the sourcing technology sector.
The total consideration was GBP6.9 million. The contingent
consideration arrangement requires the Group to pay the former
owners of Spikes Cavell GBP3.1 million of which GBP2.7 million is
expensed as part of the earnings mechanism and GBP0.4 million is
recognised within the purchase price. GBP3.8 million cash was paid
up front.
The revenue included in the consolidated income statement from
25 February 2015 to 31 December 2015 contributed by Spikes Cavell
was GBP1.5 million. Spikes Cavell also contributed a statutory loss
before tax of GBP6.0 million that includes a GBP4.6 million
goodwill impairment expense and GBP1.2 million of acquisition
related expenses (AOP loss of GBP0.2 million) over the same period.
Had Spikes Cavell been consolidated from 1 January 2015, the
consolidated income statement for the year ended 31 December 2015
would show revenue of GBP1.6 million and an AOP loss before tax of
GBP0.5 million.
The final fair value of the assets and liabilities acquired are
set out below:
Fair
value
GBPm
Net liabilities acquired 0.2
Goodwill represents the value of potential future sales,
(including the ability to cross Spikes Cavell products to existing
customers), and the reduced costs of the combined Spikes
Cavell/Xchanging Business.
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