4 March 2016 Insurance

Procurement business hits Xchanging results as takeover looms

Xchanging, the process management firm, has posted a decrease in its net revenue for 2015, down to £400.5 million, compared with £406.8 million in 2014.

The company’s adjusted operating profit (AOP) was also down to £54.6 million, compared with £55.8 million in the previous year.

Xchanging’s net cash and cash equivalents, less bank loans and revolving credit facilities and finance lease liabilities, also stood at a loss of £27.8 million last year, compared to £13.7 million in 2014.

The firm’s procurement business delivered a poor performance in 2015. This resulted in net revenue of £24.7 million (2014: £31.3 million), an AOP loss of £10.9 million (2014: £2.5 million loss) and £74.2 million of exceptional charges.

Xchanging said that without the 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 business process outsourcing (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. Xchanging said that these circumstances persisted throughout the year.

Geoff Unwin, chairman, Xchanging, said: "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.

“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.”

Unwin also talked about Computer Sciences Corporation (CSC)’s acquisition bid for Xchanging, which was recommended to Xchanging shareholders in January of this year.

He said: “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, CSC declared their bid unconditional as to shareholder acceptances having secured shareholder commitments in respect of, or direct ownership of, approximately 87.06 percent 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 percent.”

Unwin added: “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.”

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