After the disappointment of losing its anchor HR BPO client BAE Systems last month (see Xchanging loses HRO deal with BAE Systems), Xchanging has renewed its flagship IT services contract with the London Metal Exchange for an initial three years from 1st January, 2012. There is also an option to extend for a further two years. The deal is worth c£75m over the three year period, so a pretty significant c£25m per annum, which amounts to c3% of Xchanging’s total revenue. Unfortunately, BAE Systems contributed c£80m per annum to Xchanging, so this renewal won’t plug the gap.
Xchanging’s relationship with the LME goes back to 2005, when it won the initial seven-year contract to run the entire IT services function for the LME, introduced new business processes, and developed and implemented an electronic trading system called LMEselect, which has apparently now helped LME to achieve a tenfold increase in electronic trading volumes and supported its expansion into new markets.
Xchanging has been heavily involved in upgrading systems at LME, so for example, during 2010, this included implementing new trade floor surveillance and LMESword, a 'warehousing warrant system' previously delivered by the London Clearing House. As we pointed out at Xchanging’s FY results (see here), technology in the UK was the star performer for the group, driven by growth at the LME and electronic claims processing initiatives within the London insurance market. This spend from LME continued in the first half of the year.
The LME deal is a good example of the type of relationship Xchanging wants to forge - creating a hub in the centre of its clients’ business processes, where it can then exploit its technology and business process capabilities. It also makes it far more sticky when it comes up for renewal. The challenge however remains selling these technologies and services to other clients. Xchanging’s platforms need to be reusable so that the company can grow business with new clients, not just existing ones.