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Interim Management Statement Xchanging plc ('Xchanging'), the business process, procurement and technology services provider and integrator, today issues its Interim Management Statement covering the period from 1 July 2012 to date. Current Trading and Outlook Trading since the half year results has been in line with management plans and we remain on track to deliver our expectations for full year financial performance. Xchanging retains a healthy financial position with a strong balance sheet. The Procurement business has now started to recognise our share of the savings on the European L'Oréal and North American BAE Systems contracts, following completion of the initial implementation effort. We have also continued to make progress building the foundations for future growth, winning contracts with new as well as existing customers.
Commenting on today's announcement, Ken Lever, Xchanging's CEO said: "The opportunity to acquire AR has enabled us to resolve the weak strategic position of Kedrios and to create a strong combined business with scale and strong profitability. We are delighted to have this foundation from which to establish a market leading position in the industry in Italy." Commenting on the acquisition, Stefano Brioschi, AR's CEO said: "We are delighted to become part of Xchanging. The combined market presence of AR and Xchanging will enable us to provide a better quality service to our combined customer base."
The initial consideration is €12.85 million, payable in cash on completion, with further consideration contingent upon achieving defined performance criteria. The contingent payments comprise €3.21 million ("First Contingent Payment") payable in Q1 2014 and up to a maximum of €12.49 million ("Second Contingent Payment") payable by the end of Q2 2015, resulting in a total maximum consideration of up to €28.55 million. Xchanging has acquired AR's gross assets of €6.3 million and net assets of €2.6 million. Revenues for Kedrios and AR in 2011 were €12.5 million and €14.9 million respectively. The pre-tax profit attributable to AR was €3.3 million for the year ended 31 December 2011, and averaged €2.6 million over the last 3 years. The acquisition is anticipated to be earnings accretive, on an adjusted basis, from 2013 onwards. Immediately prior to the acquisition Xchanging recapitalised Kedrios with €12.85 million which diluted the shareholding of partner SIA S.p.A. ("SIA") from 49% down to 1.3%. This dilution contributes to the stated objective of simplifying Xchanging's corporate structure by reducing this minority interest significantly.
Xchanging plc Acquisition of Italian fund administration business AR Enterprise S.r.l. Xchanging plc ('Xchanging'), the business process, procurement and technology services provider and integrator, today announces that its subsidiary, Kedrios S.p.A. ('Kedrios'), has acquired 100% of the share capital of AR Enterprise S.r.l. ('AR'). AR, based in Milan, is a leading provider of software packages and comprehensive IT solutions for the securities brokerage and asset management industry in Italy, with a customer base comprising more than 100 leading financial institutions. Xchanging will combine the newly acquired AR business with Kedrios, which operates in the same business segment. The acquisition will provide a significantly improved proprietary technology platform and a much improved customer base to Kedrios. Operating synergies will also lead to reductions in the combined cost base, with restructuring costs self-funded from existing and future cash flow generated by the combined business. The acquisition will enable Xchanging to accelerate the profit growth of the combined business, creating a stronger profitable business with scale and the ability to compete successfully in the Italian financial services, technology services and business processing markets. It was planned that Kedrios would reach a breakeven run rate by the end of 2013; but without scale and significant investment in upgraded technology, its ability to sustain a strong competitive position in the long term would have remained weak.
Good to see the further strengthening of the board of management. Business is moving forwards with clarity and purpose. The news on BAE is positive too and is most welcome.
Firstly FIL have announced crossing the 5% threshold of shareholding. That could well have been what has fuelled the recent rise. Secondly BAE Systems have announced that they are not now going to replace Xchanging with Logica as planned, to run their HR. Xchanging have agreed to keep providing the service until Dec 2013. Firstly this will mean a further year of revenue and profit from the deal, secondly it could be BAE will now chose to stay with Xchanging.
Xchanging Buy 12-Sep-12 £39,339.72 Stephen Wilson 33,768 @ 116.50p
OUTLOOK The half year results show the company on track to deliver the incremental improvement in profitability for the year, as described in March. During the second half of 2012 we will continue to build our foundations for renewed growth and to pursue achievement of our four objectives for the year.
Ken Lever, Chief Executive, commented: "The results for the first half show encouraging progress. Behind these results there has been a considerable amount of activity building the foundations for renewed growth, and we can point to the first signs of the impact this has started to have. We have also continued to address the challenge of repositioning Xchanging in the business processing marketplace. We expect progress to continue as we move through the second half."
Operational Highlights · Some benefits from previous cost savings invested in business development · Incremental flow of contract wins · Insurance Services delivered good performance · New global (re)insurance and accounting settlements service (Project Sorrento) progresses towards pilot launch in Q4 · Financial Services and Corporate maintained cost savings from 2011 · 2011 new Procurement contracts in implementation phase · Technology transformation underway; insurance software product, Xuber, launch due Q4 · Improved South East Asia performance · Official inauguration of new centre at Shimoga, India
Half Year Results for the six months ended 30 June 2012 This year, our objectives are centred on investing in and building the foundations for future growth. We have been very active and have made good progress. Financial Highlights (continuing operations) · Revenue of £322.7 million (HY 2011: £322.0 million*) · Adjusted operating profit of £16.0 million (HY 2011: £13.8 million) · Operating cash flow of £26.6 million (HY 2011: £8.0 million*) · Return on invested capital of 23.6% (HY 2011: 21.6%) · Adjusted operating profit margin of 5.0% (HY 2011: 4.3%*) · Statutory operating profit of £14.0 million (HY 2011: £3.2 million) · Adjusted basic earnings per share (EPS) of 2.49 pence (HY 2011: 1.63 pence) · Net cash of £62.1 million (HY 2011: £37.8 million*)
Very much a steady as she goes trading update from Xchanging. With two cautious accountants at the helm it does not surprise me that we are not getting any hyperbole from them, when they have a deal signed sealed and delivered we will hear of it not before. They are desperate to keep expectations in check but will, in my opinion, deliver reliably on the numbers that they have 'committed to'. Not sure what Seymour Pierce are going on in downgrading the stock from a hold to a sell, there was nothing in this morning's announcement that could lead to that conclusion.
Jange, thanks for posting that. This is one of the other articles that I was referring to as getting the loss of the BAES HR contract completely out of perspective referring to it as ' a major contract loss' and then 'Xchanging has suspended the dividend while it seeks to recover from the BAE loss'. I come back to the numbers, the contact lost was £15m revenue and £.5m profit. It is irrelevant in financial terms the only impact being symbolic as it was the first contract but then anyone who follows the outsourcing sector will tell you that swapping out to a new supplier at the end of a long contract is nothing unusual as the purchaser seeks to minimise the cost of the deal. It is far better that Xchanging lost the renewal than got it at a ridiculous price which I suspect is what Logica ended up bidding. I would be surprised if they make much margin if any.
Outsourcing firm Xchanging underlined unveiled better than expected profits for 2011. The company, which provides back office functions like invoice payments and procurement and counts the London Metals Exchange and Gatwick Airport as clients, once traded above 300p per share but a couple of profit warnings and a board room reshuffle saw its shares slump to double-digit status last year, though 2012 has been much kinder to the share price. Revenues for 2011 came in at £650m, below the consensus forecast of £671.5m but adjusted operating profit came in ahead at £43.2m versus £40.4m. Xchanging had to contend with a major contract loss last year, when BAE systems failed to renew its personnel agreement, although the firm continues to work for BAE in the US while French cosmetics giant L'Oreal signed on the dotted line in 2011. Xchanging also managed to sell its US workers' compensation business and re-negotiate new banking facilities during the year. Xchanging has suspended its dividend as it seeks to recover from the BAE loss which contributed, in part, to a 25% share price decline last year. The Chief Executive, Ken Lever said Xchanging had been "stabilised" and was now on a "sound financial footing" but made clear that: "Our success in 2012 will be measured by the extent to which we turn new sales opportunities into contracts".
Mulled Wine, thanks for flagging up the Tempus view which I had not seen. One think that I find disconcerting, to the extent that it shows the lack of true understanding that a lot of these so called experts have, is that Tempus, like a number of other articles that I have seen, keep referring to the loss of the Baes HR contract as the ' loss of a major deal' and sometimes the Baes procurement deal as a consolation prize. The HR deal whilst once important had become insignificant, it was £15m revenues and £.5m profit.
Xchanging, the outsourcing company is also unloved. A disastrous acquisition in India has really damaged the firm says Tempus, and it lost a major contract with BAE Systems last year. Management has suspended the dividend until things improve. Tempus is not interested.
Tomorrow is results day. Looking back on the past year I see pretty much only positive events and lots of them since the near nadir of 09 Feb 2011. Starting with that day itself, the departure of David Andrews was good news; I am a big fan of David Andrews and believe he did a fantastic job in growing a FTSE 250 company from nothing in the space of 8 years but his skill set was not right for running an established global company, which is what Xchanging had become. He himself acknowledged as much in his FT interview back in December for his latest venture.The move of Ken Lever from CFO to CEO was exactly the right thing to do given the concerns that had been expressed about Xchanging's accounting as his high profile in the accounting world, including chairing the 100 club, meant that he, as much as anybody, would be trusted once he had scrubbed the Xchanging accounts. The question was obviously out there as to whether he could make the transition from CFO to CEO and I think the last year shows the answer is yes. Underpinning him with David Bauernfeind, a long term Xchanging hand who had not just proved a very strong UK CFO but also an excellent able right hand man to the UK MD, was also an excellent choice. The clean out of the Board, who, and it is difficult to argue otherwise , got it horribly wrong in the acquisition of Cambridge, was timely and the departure of Nigel RIch in particular. Personally I like appointment of Geoff Unwins as the new Chairman, an ex CEO rather than an ex CFO which many chairmen are, has helped ensure the three most senior positions at Xchanging are not all accountants/ ex CFOs, and provides Ken Lever with a good mentor in his first CEO role. The ditching of the loss making US business was a great move and getting paid for that Dodo was a masterstroke. The renegotiating of banking arrangements was a great sign both because it provides cover out to 2015 thereby confounding the nay sayers who believed Xchanging was about to go insolvent like ROC and Connaught and because it showed that, having crawled all over the books, the banks were confident enough to lend on a long term basis. The cost cutting has been brutal but targeted with the bloated senior management layers thinned out and the unnecessary real estate such as the Mayfair head office and the Chicago white elephant dispensed with but investment has continued in the right places such as building the new and pioneering Shimoga processing centre. Sales, long the Achilles heal of Xchanging have at last started to role in with the enormous procurement contracts with L'Oreal in Europe and BAES in North America (the true scale somewhat hidden by Xch's new way of accounting for them) and existing key customers have been renewed such as the LME and procurement for BAES UK (HR was lost but it was a minnow). Finally the overall structure of Xch, including the messy shareholdings with Cambridge and AON for XBS, has been simplified. In short: a great year, well done!
Prof, nice to be welcomed and thanks for your very detailed thoughts. Agreed that confirmation of the BAE contract renewal makes one breathe a little easier. Despite the smaller margins and pre-existing relationship its good to see that big contact providers aren't being put off. Also nice to see that Xch is still capable of winning them. Also, nice to see the institutional investing crowd upping their holdings and again this is hopefully confirmation of some reasonable results next week. I guess the not particularly dynamic but steady hand of Mr Lever is providing reassurance. Regards next week... I'm finding it difficult to put potential numbers out there given the volatility with Xch over the past 12 months, but would expect upwards of £20M profits. How the market reacts given the recent upward move in share price is anyone's guess. Either way, I'm in for the long haul. Off the back of good results next week, and a decrease in the general macro economic craziness, I'm hoping for upwards of 160p by the end of the year.
Interesting that both Artemis and Morgan Stanley have announced in the past day that they have exceeded 5% shareholding in Xch. That could account for some of the recent rise. Equally interesting though is that it suggests that some of the big boys are no longer frightened senseless by this share. Let us hope that they are well rewarded come next week's results which I believe they wil be.
Firstly welcome to the LSE site. I agree that the news today is excellent. It was always likely that having chosen recently to go with Xch in the US and having chosen last year to go with Xch in Australia that BAES would extend with them in the UK nevertheless is good that this is now confirmed. Ken Lever has pointed out that margins will be lower than before on the renewed deal which is as one would expect on an extension to a 10 year deal. It will be interesting to see if the categories that are in scope remain the same or whether BAES uses this opportunity to change some of them around. 2.35% is a good rise today but I would say this given how much has been made in the past about the risk to Xch's revenues because of this contract ending at the end of this year, it is disappointing not to see a bigger climb today however this does need to be taken agans the backdrop of both the falling FTSE and the near 30% rise in the Xch share price over the past few weeks. With regards to your specific question around next week's results they are a key event as the market has been scared senseless of holding this share since the bring out your dead announcement of 09 Feb 11. As I have written before I think the reality inside the company was never as bad as was assumed and also the actions put in place under the new Lever/Bauernfeind leadership are exactly what was needed. The analyst expectation are all over the shop ranging from the twenties to the fifties. At today's close Xch's cap was £208M, taking a PE of 10 that would suggest that anything upwards of £20M profit being announced a week Thu should increase the share price. I would expect profits to be in £35-45M bracket so see plenty of upside to come. Now the market will not given Xch a PE of 10 because it is still sore from last year but I do think that a very hefty discount is still being applied due to uncertainty over the true health of the company. I would expect the results on 01 Mar to reveal that the company is in significantly better health than is generally believed and the share price to continue to climb over the next few weeks. As I have written before I would anticipate fair value to be upwards of 150. Even arch Xchanging bear Panmure have upgraded their guidance to 90p per share which is the first time in a long while that they have posted ahead of where the price currently stands.
Hello all, first post here on LSE. Good news for Xchanging today. Any thoughts on the pending results? I've been hoping that expected good news has been slowly priced in over the past few weeks and I'm hoping the new contract is icing on the cake?!
Commenting on the new contract, Xchanging's CEO Ken Lever said: "In August 2011 we saw our procurement business make a step change with the addition of the two important contract wins. The new contract announced today will contribute significantly to this, enabling us to retain the benefits of scale as well as our core expertise and infrastructure in the important UK market. We have an extensive relationship with BAE Systems across three continents and this new contract will also support our wider relationship with this valued customer."