XCH.L Regulatory News (XCH)

19 May 2009 07:00



Xchanging plc Interim Management Statement

Xchanging plc, the global business processing company, is releasing an interim management statement on its trading for the 4 months to 30 April 2009.

Current trading

During a period in which our global customers adjust to the severe downturn in business activity, our pipeline of opportunities has reached record levels as our customers seek to reduce costs and investment. In the first four months of the year, the business has continued to grow. However, we have not been immune to market pressures, particularly in respect to transaction volumes and asset values in the banking sector, and claims volumes in the US. IT revenues have also been affected as customers have deferred discretionary spend. These downward pressures on revenues have been partially offset by stronger than expected growth elsewhere in the Group, including several contract wins. Nonetheless, revenues are slightly behind the Board's expectations to date.

Renewals

We are pleased with the very high level of renewals achieved in the first 4 months. We have achieved over 13 contract renewals including Wal-Mart, American Express and SPX in the US. In Europe and Asia, we have extended contracts with DHL and the Singapore Government. We have also successfully concluded our discussions on the future shape for claims processing with the London Insurance market. There have been no material contract losses during the period.

New business won

We have also secured a number of significant new business wins during the first 4 months, including:

Agreement with DAB bank AG to purchase its Fonds Service Bank (FSB) business unit, a provider of investment administration processing, for up to €21.4m. FSB currently administers 460,000 accounts for a range of blue chip banks and retail investors and had revenues of over €40m in 2008. FSB adds 60% more volume to our German investment account-processing platform. This is the most modern platform for funds managers and IFAs and cements our position in Germany as the investment account processor of choice. The acquisition is expected to be margin accretive in its first full year.

Strong revenue pipeline

The above signals an encouraging build up of momentum as business process outsourcing gathers pace globally. Our pipeline now has the highest volume and value of opportunities we have experienced to date, with an emphasis on major multi-national companies. We believe that this endorses our global business processor vision and underlines the importance of our distinctive partnering approach for mission-critical non-core processing.

Cambridge integration on target

On 9 April 2009, we announced the completion of our acquisition of 75% of the fully diluted share capital of Cambridge Solutions Limited. David Andrews and Richard Houghton joined the board of Cambridge Solutions on 12 January 2009.

We have implementation teams on the ground in the US, India and Australia and are on track to complete the integration by the end of 2009 as planned. Key aspects include: a major restructuring of the US BPO business with 45 sites being consolidated down to 15 by the middle of the current year; our new US centralized processing centre up and running in Q1 2010. Customers have been very positive about the change of ownership as demonstrated by the high level of renewals. We are also exploring a number of opportunities to expand existing customer relationships.

A regional emphasis

The 1st January reorganisation of our processing businesses by region (UK, Continental Europe, Americas and Asia Pacific) plus Global Procurement, is showing benefits in market access, cost efficiencies and consolidation synergies resulting from our acquisition of Cambridge. We expect these synergies to accelerate in the second half as we launch our Global Production initiative on July 1st. In future, we will be reporting our results by region, in line with the way we run the business globally.

Outlook

Looking across our business, we are well insulated from the worst effects of the global downturn. We had over 80% visibility of our revenues at the beginning of the year. Based on the first four months trading, we are still expecting significant growth but we anticipate that full year revenues could be slightly below current expectations.

We are taking action to manage our cost base including, as previously announced, the restructuring of our US business. We are intent on becoming the lean processor and continue to manage costs accordingly. The Board is therefore confident that operating profits can be delivered in line with expectations.

Summary

David Andrews, CEO of Xchanging, said, "We are moving ahead strongly with our vision to be the global business processor of choice. Whilst 2009 will inevitably be a tough year given the very challenging economic environment, we remain on course to grow rapidly and to deliver significant value to our partners, customers and shareholders. We have a strong balance sheet to support growth and remain highly confident about the prospects for Xchanging. Indeed, we believe that the present adverse economic conditions will accelerate the move towards buying business processing services rather than the traditional DIY/in-house approach". 

Xchanging will announce its interim results on 3 August, 2009.

About Xchanging

Xchanging is a fast growing, pure play global business processor with blue chip customers. Xchanging provides complex industry specific processing to the banking and insurance industries as well as procurement, finance and accounting, and human resources services across industries.

www.xchanging.com