Xchanging slumps after procurement impairment and CEO retirement

30th Jul 2015 12:02

(ShareCast News) - Outsourcing company Xchanging shares fell sharply on Thursday as disappointing interim results were followed by the retirement of chief executive Ken Lever and a proposed restructuring of the procurement division.Despite a solid performance from the core business process services (BPS), the fully listed company's results suffered mainly due to a poor performance from the smaller procurement division, which lost a much larger £6.8m than was expected.Procurement, which contributes 6.5% of net revenue, grew its top line on the same period last year but saw a weak performance in the traditional outsourcing business, combined with underperformance in one of the new 'tail-end spend management' contracts.The problems in procurement related to a single contract, which has now been classified as onerous, with a £47m goodwill writedown having been made in the division relating to a historic contract acquisition.As a result, adjusted pre-tax profits of £17.1m were reduced to a statutory loss of £44.4m.The BPS arm lifted adjusted operating profit 8.8% to £28.4m, with the technology segment 52% stronger to £4.1m.Lever, who will retire at the end of the calendar year with the search for a successor already underway, said: "Procurement's performance was poor. Given a negative outlook, the business will be reorganised over the next half year to facilitate achievement of run-rate profitability."He added that there were "a number of variables" that could affect the potential full year outcome, including progress on the reorganisation of procurement, the timing of Xuber contract wins and currency rates."The outlook for the full year is a trading performance in line with last year and a return to profit growth in the full year 2016," he said.The net cash position slumped to £31.3m from £107.5m a year before.Analysts at Investec cut their 2015 adjusted operating profit forecast by 11.7%, primarily due to procurement's losses, and for the second half assume a further loss of only £1m.Shares in the company were down 22.5% to 97.87p by 13:00 on Thursday.