Since taking over the Xchanging helm in March following the departure of CEO and founder David Andrews (see Xchanging may need reshaping), acting CEO and CFO Ken Lever has got to work implementing a four-point plan to reduce costs and improve operational performance. Lever said that trading in Q1 has been ‘solid’ thanks to a better than expected performance in insurance (excluding the workers' compensation claims business in the US) and financial services, and an in-line performance from procurement and HR (with the renewal of the WorkSafe contract with the State of Victoria, Australia and an extension of the BAE Systems' Australian procurement services contract). The performance from the technology division has however been slow.
It appears Lever is making good progress cutting costs, and improving the company’s cash position, which is currently higher than budgeted a this point in the year. To achieve this, Xchanging’s head office in London's West End is being closed, and remaining staff relocated to its Leadenhall Street site by the end of July. There has also been a “sizeable reduction in the number of senior managers in the UK”, and cost cutting and reorganisation in the US business. This process is on-going. Lever is also looking at costs savings in its supplier management programme, and has withdrawn from technology reselling due to the low margins and relatively high costs of sale. This will reduce revenue by c£20m in FY11 but deliver a cash flow benefit due to the elimination of the working capital requirement.
This all looks more promising, but we wait to see more of the specific details at the half year results. Lever’s impetus has helped restore some of the market’s confidence in Xchanging (see Share indices in March 11). But there is clearly much work still to be done.