Serving customers in 42 countries 8,211 employees £750.4m revenue Xchanging plc Annual report and accounts 2009 4,541 employees £557.8m revenue 4,255 employees £468.2m revenue 3,449 employees £393.5m revenue 3,116 employees £350.0m revenue 2,465 employees £254.1m revenue 1,241 employees £130.8m revenue 1,108 employees Building the global business £115.4m revenue 1,038 employees processor of choice The concept £39.9m revenue behind Xchanging 18 employees was born £0.05m revenue Seven employees 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Who we are and what we do Xchanging is one of the largest and fastest growing business processors. With a wide range of multinational customers in 42 countries and employing over 8,000 people, we are a truly global company. We deliver mission-critical, high-volume processing to our customers. Our aim is simply to provide business processing services better, cheaper and faster. Key performance indicators Revenue (£ million) XEBIT1 (£ million) CAGR 2 (2005 – 2009) 21% CAGR 2 (2005 – 2009) 28% 34.5% 750.4 52.4 557.8 38.5 Revenue growth 468.2 31.1 up to £750.4 million from £557.8 million in 2008 393.5 350.0 21.7 19.3 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Xchanging has a track record of rapid growth, Xchanging has continued to deliver strong profit with a compound annual growth rate of 21%. growth with XEBiT up 36% in 2009 over 2008. 36.1% 1 3 XEBIT margin (%) Cash generated from operations XEBIT growth (2005 – 2009) +150 basis points (£ million) CAGR 2 (2005 – 2009) 22% Up to £52.4 million from £38.5 million in 2008 6.9 7.0 76.3 6.6 69.7 5.5 5.5 53.7 34.5 29.4 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Margin has improved by 10 basis points in 2009 despite Operating cash flow remains strong with cash 15.40p dilutive impact of acquisition of cambridge business. generated from operations pre cash exceptional items increasing by 9.5% to £76.3 million in 2009. Underlying EPS – basic2 14.40p in 2008 2.75p Footnotes Dividend per share 1 A full reconciliation to the statutory numbers can be found on page 18. 2.5p per share in 2008, an increase of 10% See glossary of terms on page 120 for definition. year-on-year 2 See glossary of terms on page 120 for definition. 3 Represents operating cash pre cash exceptional items. Xchanging plc an n Ual REpORT and accOUnTS 2009 Contents Business review Business review 2 Describing our business 6 Chairman’s statement 7 Chief Executive Officer’s statement 10 A year in review 12 Market overview 14 Our strategy 16 Operational and financial eviewr 16 – Summary 17 – Group performance 20 – Segmental performance 24 Key risks, potential impacts and mitigation strategy 25 Our people 28 Corporate social responsibility Governance Governance 32 Our management team 34 Board of directors 36 Directors’ report 41 Corporate governance 47 Remuneration report Financial statements Financial statements Group financial statements 54 Independent auditors’ report (group) 55 Consolidated income statement 56 Consolidated statement of comprehensive income 57 Consolidated statement of changes in equity 58 Consolidated balance sheet 59 Consolidated cash flow statement 60 Notes to the consolidated financial statements Company financial statements 112 Independent auditors’ report (company) 113 Company balance sheet 114 Company cash flow statement Notes to the company financial statements 115 Information Information 119 Shareholder information 120 Glossary of terms Xchanging plc 1 an n Ual REpORT and accOUnTS 2009 Business review describing our business Xchanging is one of the largest and fastest growing business processors. Our core business is re-inventing and operating our customers’ non-core or back-office activities. Who we are Procurement Human resources (HR) Xchanging is one of the largest and We source in excess of £1 billion of We provide a complete set of fastest growing business processors. spend on behalf of our customers. Our employment services. These services With a wide range of multinational top categories of indirect spend include cover the entire employment life cycle customers in 42 countries and employing contract labour, travel, telecoms, facilities, from recruitment through to payroll and over 8,000 people, we are a truly global iT and office supplies. We act either as an pensions payments. Our aim is to provide company. We deliver mission-critical, agent between the customer and the an integrated approach that uses the high-volume processing to our customers. supplier, or we deliver a fully-managed underlying employment data in the wide Our aim is to provide a better service at service where we contract directly with variety of hR tasks and activities. data lower cost than can be achieved internally. suppliers, on-selling their goods or integrity and responsiveness is crucial services to our customers. By leveraging to delivering reliable, high-quality hR listed on the london Stock Exchange in our supplier relationships and applying services. We undertake the administrative 2007, Xchanging has almost doubled its our trading expertise and buying power, processing and manage the supply chain revenues and more than doubled profits1 we drive savings to our customers’ for hR-related categories of spend such since our initial public offering (ipO). The bottom lines. Key procurement customers as car schemes, medical assurance, company is in the FTSE 250, the index of include alexander Mann Solutions (aMS), travel and training. We provide expert mid-capitalised companies traded on the BaE Systems, national australia group advice on the various facets of hR, be london Stock Exchange. Xchanging Europe (nagE), caisse d’Epargne (part it pensions calculations, learning and is also a member of the FTSE4good index, of the Banque populaire caisse d’Epargne development, performance measurement which measures the performance of group) and Finmeccanica group. or international recruitment, relocation, companies that meet globally-recognised immigration and tax compliance. corporate responsibility standards. Finance & Accounting (F&A) Xchanging delivers hR and payroll services We process approximately £3.5 billion and support to 1.25 million employees What we do of payables and receivables accounts and pensioners and their dependents Our core business is re-inventing and and complex orders and invoices each across multiple locations and countries. operating our customers’ non-core or year for our customers across a range of back-office activities. We provide industries. We provide general payables We run a number of back-to-work and business processing services across a and receivables accounting and complex medical compensation schemes for a wide broad range of industries. Our areas payments and settlement processing of an variety of customers in the USa, the UK of expertise include: industry-specific nature. Key accounting and australia. For example in australia, customers include Boots UK and london we manage the end-to-end process insurance market participants. We also in placing employees back into the provide F&a services in the real estate workforce. We manage this for 37,500 sector for cB Richard Ellis (cBRE). employers in a government-managed scheme. in 2009, we successfully returned 7,940 injured workers back to work. Footnote 1 Xchanging’s share of underlying profit for the year. 2 Xchanging plc an n Ual REpORT and accOUnTS 2009 Technology Insurance services How we do it Business review We design, build and run a range of Xchanging is one of the leading providers Our value proposition is based on building business processing solutions. We embed of business processing services and economies of scale and standardising our intellectual property (ip) to create a software solutions to the insurance business processes. We call this lean solution faster and more cost-effectively industry internationally. This includes processing. Scale and standardisation are than customers can themselves. We processing of insurance policies, essential to meet customer demands for host the software and hardware to run premiums and claims, and broking efficiency and better quality of service. systems and provide the extensive data services. in 2008, in partnership with the warehousing facilities needed by our london insurance market, we embarked Scale economies customers. Our services are aimed at on an ambitious project of making this We generate economies of scale through companies that wish to use iT services market paperless through the insurers’ growing our processing platforms and to improve organisational effectiveness Market Repository (iMR). in 2009, we expanding our international footprint. and profitability. For instance, we have successfully implemented an upgraded We follow standard production designed, built and now operate one iMR. The development of the iMR is a methodologies across all our processing of the most comprehensive suites of key part of the london insurance market’s centres globally. Our major processing insurance-related document management effort to achieve more efficient business centres are in london, Romford, Fulwood Governance services in the world. These are employed processing. Key insurance services and chatham (UK), Sossenheim and hof by the global participants of the london customers include lloyd’s, liberty Mutual (germany), gurgaon, chennai, Shimoga insurance market. Other key technology insurance Europe and ace. and Bangalore (india), Solon and chicago customers include QBE Europe, dhl and (USa), Melbourne and Sydney (australia). allianz global Solutions. in the americas, we provide claims processing services to companies for their Global Balancing Industry-specific services injured workers’ compensation as well We leverage the scale of our processing We also provide a range of industry- as other areas such as professional, auto, centres by moving work around the globe specific services which draw on the above product, general and consumer warranty to take advantage of time zones and functional expertise, combined with deep liability claims.