XCH.L Regulatory News (XCH)

6 Oct 2008 07:00

3 October 2008

KEY HIGHLIGHTS

Xchanging announces that it has today agreed to acquire 75% of the fully diluted share capital of Cambridge Solutions from a group of Cambridge Solutions' major shareholders (the "Acquisition"). Cambridge Solutions, with approximately 4,500 employees, is an international BPO and IT services provider with a global presence through offices in eight countries across four continents. Cambridge Solutions provides its services to a blue-chip customer base and is listed on the Bombay, National, Madras and Ahmedabad stock exchanges in India.

The consideration for the Acquisition will be approximately £83 million, comprising Rs 3,712 million in cash (equivalent to approximately £45 million at current rates) and the issue of 15,249,998 New Xchanging Shares. The New Xchanging Shares amount to 7% of the Company's current issued ordinary share capital.

The Acquisition is consistent with our strategic objectives and the dynamics of the BPO market, and represents the next step in Xchanging's development, delivering a number of unique benefits. The addition of Cambridge Solutions to Xchanging delivers greater scale, broader international reach and a number of platforms for significant future growth. In particular, the Acquisition brings the following strategic advantages: 

processing capabilities and a strong market presence in the USA, which can serve as a springboard for future growth;

the addition of scale to Xchanging's Indian BPO platform and the creation of offshore critical mass; 

the addition of a strong Australian business and a platform for Xchanging's growth in the region;

the addition of scale and the enhancement of the Xchanging Group's IT capabilities; and

the opportunity to create a truly international insurance processing business with significant combined revenues.

Cambridge Solutions and Xchanging have enjoyed a successful commercial relationship for two years, under which Cambridge Solutions provides services through its Indian operation to Xchanging Broking Services. Therefore, Xchanging knows Cambridge Solutions well and has a keen insight into the quality of the business and its people and the areas that can be improved by Xchanging's approach and methodologies.

Xchanging believes that the Enlarged Group will be well positioned to benefit from the global trends affecting the BPO market and to provide the cost and efficiency benefits that its customers are seeking.

The Enlarged Group will have a global footprint which will allow it to access significant new sales opportunities which should generate incremental revenues.

Xchanging expects that the Acquisition will be accretive to earnings before one-off costs in the first full year after Completion. It expects the Acquisition will generate returns in excess of Xchanging's cost of capital from 2010 onwards.

In compliance with Indian law and as a consequence of the Acquisition, Xchanging will make an Open Offer to acquire up to 20% of the fully diluted voting share capital of Cambridge Solutions. Any Cambridge Solutions Shares acquired under the Open Offer will reduce the number of Cambridge Solutions Shares to be acquired from the major shareholders, as will any reduction in the fully diluted share capital of Cambridge Solutions in the period to Completion. Therefore, at Completion this will result in Xchanging owning 75% of the fully diluted share capital of Cambridge Solutions.

The Acquisition is conditional on receiving the approval of Xchanging Shareholders. Details of a meeting convened to seek this approval will be set out in a circular which will be sent to Xchanging Shareholders in due course.

A presentation will be held for investors and analysts on Monday 6 October 2008 at 9:15am at Xchanging's offices, 34 Leadenhall Street, London, EC3A 1AX.

David Andrews, Chief Executive Officer of Xchanging said:

"This is a unique opportunity to accelerate our strategy to create a global business processor at a time when our industry is internationalising. 

"We will be able to offer customers both global reach and a proven track record in business processing and IT."

ENQUIRIES:

Xchanging is a fast growing international, pure play business processing company with blue-chip customers. Xchanging provides complex industry specific processing to the banking and insurance industries and procurement, finance and accounting, and human resources services to customers across industries. www.xchanging.com.

Citigroup Global Markets Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as exclusive financial adviser and joint broker to Xchanging and no one else in connection with the Acquisition and will not be responsible to anyone other than Xchanging for providing the protections afforded to its clients nor for providing advice in relation to the Acquisition.

UBS Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as joint broker to Xchanging and no one else in connection with the Acquisition and will not be responsible to anyone other than Xchanging for providing the protections afforded to its clients nor for providing advice in relation to the Acquisition.

3 October 2008

1. INTRODUCTION

Xchanging today announces that it has entered into two conditional sale and purchase agreements to acquire, in aggregate, up to 75% of the fully diluted issued share capital of Cambridge Solutions, an international BPO and IT Services provider listed and headquartered in India, for total consideration of approximately £83 million, comprising up to Rs 3,712 million in cash (equivalent to approximately £45 million at current exchange rates) and the issue of 15,249,998 New Xchanging Shares (amounting to 7% of the Company's current issued ordinary share capital). In compliance with Indian law and as a consequence of entering into the Acquisition, Xchanging will make an Open Offer to acquire up to 20% of the fully diluted voting share capital of Cambridge Solutions. Any Cambridge Solutions Shares acquired under the Open Offer will reduce the number of Cambridge Solutions Shares to be acquired under the Acquisition as will any reduction in the fully diluted share capital of Cambridge Solutions in the period to completion. Cambridge Solutions is currently listed on each of the Bombay, National, Madras and Ahmedabad stock exchanges in India and will remain listed after the completion of the Acquisition and the Open Offer. 

The timetable for the completion of an Open Offer in India is uncertain as a result of the need to agree the required documentation to be sent to Cambridge Solutions Shareholders with SEBI. As the Acquisition is conditional on the Open Offer having completed, there can be no assurance as to when it will ultimately be completed, although the Xchanging Board expects the Open Offer and the Acquisition to complete in Q2 2009.

In view of its size, the Acquisition constitutes a Class 1 transaction for Xchanging for the purposes of the Listing Rules and accordingly Completion of the Acquisition is subject to, amongst other things, Xchanging Shareholder approval which will be sought at a general meeting of Xchanging shareholders to be convened in due course. Neither the making of the Open Offer nor the acquisition of Cambridge Solutions Shares thereunder is subject to Xchanging Shareholder approval and the Open Offer will be made whether or not the Acquisition completes.

2. BACKGROUND TO AND REASONS FOR THE ACQUISITION

Xchanging is a pure play business processing company that provides a range of industry-specific processing services to the insurance and financial markets, as well as procurement, finance and accounting, human resources and technology infrastructure services to customers across a broad range of industries. Our strategy is based on a combination of rapid growth and lean processing. Growth is vital for generating economies of scale and an international footprint, while lean processing is essential to meet customers' demands for efficient production and better quality of service. Our stated strategy to achieve these aims is:

to grow our existing platforms in commercial insurance, financial markets, HR, procurement, accounting and hosting;

to add new platforms in new processes, new geographies or new industry sectors; and

to become a lean processor in each major area of service through standardisation, scale and our Global Balancing approach.

We have grown rapidly since our formation in 1999 and our initial public offering in 2007. We have expanded our international footprint and consolidated our position in seven countries. In November 2007, our seventh Enterprise Partnership commenced. Our progress has continued into 2008, with the acquisition of Mercuris, the French procurement business, the signing of an outsourcing contract with Cooper Gay and the signing of a contract to remove paper from the London insurance market.

The global BPO opportunity is substantial. IDC (note 1) predicts a 14.3% market growth rate to 2011 from an existing market size of US$36.2 billion. The BPO industry continues to internationalise, requiring service providers to operate on a truly global basis. Large corporations, particularly in the financial services industry, are under increasing pressure to deliver long-term profit improvements. They are increasingly looking for outsourcing providers who can serve them across boundaries, be they geographic or functional.

The Acquisition is consistent with our strategic objectives and the dynamics of the BPO market, and represents the next step in Xchanging's development, delivering a number of unique benefits. The addition of Cambridge Solutions to Xchanging delivers greater scale, broader international reach and a number of platforms for significant future growth. In particular, the Acquisition brings the following strategic advantages:

processing capabilities and a strong market presence in the USA, which can serve as a springboard for future growth;

the addition of scale to Xchanging's Indian BPO platform and the creation of offshore critical mass; 

the addition of a strong Australian business and a platform for Xchanging's growth in the region;

the addition of scale and the enhancement of the Xchanging Group's IT capabilities; and

the opportunity to create a truly international insurance processing business with significant combined revenues.

Cambridge Solutions and Xchanging have enjoyed a successful commercial relationship for two years, under which Cambridge Solutions provides services through its Indian operation to Xchanging Broking Services, Xchanging's Enterprise Partnership with Aon Limited. In addition, the two companies cooperate on the development of IT infrastructure and joint sales opportunities. This relationship has generated a high level of interaction between the respective management teams and given Xchanging's management an insight into the quality of the business and its people and the areas that can be improved by Xchanging's approach and methodologies.

The acquisition of Cambridge Solutions will significantly broaden Xchanging's international reach, increase our offshore capacity and add new products and capabilities to our portfolio of offerings. The Xchanging Board believes that the Enlarged Group will be well positioned to benefit from the global trends affecting the BPO market and to provide the cost and efficiency benefits that our customers are seeking. Accordingly, the Xchanging Board believes that the acquisition will significantly improve the long-term growth prospects of the Enlarged Group.

3. INFORMATION RELATING TO THE CAMBRIDGE SOLUTIONS GROUP

Cambridge Solutions, listed on the Bombay, National, Madras and Ahmedabad stock exchanges in India, is an international BPO and IT Services provider. It has a global presence with offices in eight countries across four continents and has approximately 4,500 employees. 

Cambridge Solutions provides BPO services in three geographic regions (the USA, Australia and India), which act as relatively distinct business units. A description of each of these BPO units, together with a description of the IT services division, is included below.

US BPO

The US BPO division was acquired from Aon Corporation in 2004 and has approximately 1,250 employees. The division currently operates two units, Field Claim Services and Specialist Services, from more than 50 offices across the USA.

The Field Claim Services unit provides third party administration ("TPA") services in respect of workers' compensation claims. There are a number of customers across the USA, including Walmart and Southwest Airlines. The customers are principally corporate employers and government authorities who self-insure against injuries sustained by their workers and outsource the processing of any resulting claims. The business has relationships with the insurance brokers who are an integral part of this market. Cambridge Solutions is one of the top five providers of these services in the USA, competing with companies such as Sedgwick, SRS and Gallagher Basset.

The Specialist Services unit provides a range of specialist insurance claims processing services, including professional liability claims, structured settlements and reinsurance claims processing. Cambridge Solutions also provides collision damage waiver claims processing for those individuals relying on coverage provided by credit card providers, such as American Express and MasterCard and fleet providers such as Toyota. In addition, this unit provides claims record hosting services.

Combining Cambridge Solutions' US business with Xchanging's existing insurance business would provide Xchanging with a truly international commercial insurance business. The Board believes that the combination of Xchanging's existing market position and its relationships in the commercial insurance market with Cambridge Solutions' well-established US operations will facilitate the winning of further business processing contracts and Enterprise Partnerships in the USA.

Australian BPO

The Australian BPO division was also acquired from Aon Corporation in 2004 and provides workers' compensation claims TPA services. This division has approximately 400 employees servicing the state governments of Victoria and New South Wales. The division operates a form of gain-share arrangement, which generates significant benefits based on delivering strong performance to the customer.

Cambridge Solutions believes that there is significant opportunity for further organic growth within the state governments of Victoria and New South Wales as well as to penetrate the state governments of South Australia and Western Australia.

Cambridge Solutions' Australian BPO division will provide a substantial physical and managerial infrastructure for expanding Xchanging's existing presence in Australia. 

India BPO

Cambridge Solutions' Indian BPO business is growing rapidly and currently has approximately 1,250 employees. It provides a variety of offshore services across a range of industries to a number of international customers. Services provided include real estate accounting, pension administration and broking services. The last of these is provided to Xchanging's broking services Enterprise Partnership. 

The division's principal facilities are in Bangalore, housing some 1,000 employees, with capacity for an additional 2,000 staff when fully fitted out. Cambridge Solutions' Indian BPO business will provide Xchanging with additional scale and capacity in India. The implementation of Xchanging's standard operating model at the Cambridge Solutions facilities and the utilisation of the considerable spare capacity should also enhance the performance of the business.

India IT Services

Cambridge Solutions' IT Services division currently has some 1,600 employees based in Chennai, Singapore and the USA. The division provides a variety of products and services focused on a number of vertical sectors such as Banking; Manufacturing and Logistics; Insurance; and Real Estate.

The Cambridge Solutions IT Services division offers a number of products and services which will support existing Xchanging operations. The division will enhance Xchanging's migration capabilities for new outsourcing customers, will deepen Xchanging's technology capabilities with respect to existing platforms and will assist Xchanging when bidding for new large scale partnerships.

Consolidated Financial Information

Under Indian GAAP, for the year ended 31 March 2008 Cambridge Solutions reported revenue of Rs 12,363 million (£155 million) (2007: Rs 14,698 million or £185 million) of which Rs 9,051 million (£114 million) (2007: Rs 10,040 million or £126 million) was generated by the BPO business and Rs 3,312 million (£42 million) (2007: Rs 4,658 million or £59 million) was generated by the IT business. On a geographic basis, the revenues for the year ended 31 March 2008 were split into Rs 8,672 million (£109 million) from the USA, Rs 2,083 million (£26 million) from Australia and Rs 1,608 million (£20 million) from Europe and the rest of the world.

Under Indian GAAP, for the 12 months ended 31 March 2008, Cambridge Solutions reported EBITDA (note 2) of Rs 944 million (£12 million) and profit before tax of Rs 161 million (£2 million). As at 31 March 2008, Cambridge Solutions had gross assets of Rs 8,621 million (£108 million).

For the 12 months ended 31 March 2008, under IFRS (as adopted by Xchanging), Cambridge Solutions had revenues of Rs 12,654 million (£159 million) and operating profit of Rs 461 million (£6 million).

On 31 July 2008, Cambridge Solutions released its first quarter results for the three months ended 30 June 2008. Cambridge Solutions reported Rs 3,085 million (£36 million) in consolidated revenues for the quarter. The consolidated EBITDA for the quarter was Rs 255 million (£3 million), an increase of 33%, against Rs 192 million (£2 million) in the corresponding quarter in the previous year. Profit after tax for the quarter was Rs 29.4 million (£0.3 million) against a loss of Rs 49.4 million (£0.6 million) in the corresponding quarter in the previous year. The consolidated revenue was broadly in line with the previous quarter and the EBITDA improved 33% year on year and 19.3% quarter on quarter. 

The financial information set out above for the financial years 2007 and 2008 has been translated into Sterling at a rate of £1:Rs 79.6 (being the closing rate of exchange as at 31 March 2008). The financial information set out above for the three months ended 30 June 2008 has been translated into Sterling at a rate of £1:Rs 85.5 (being the closing rate of exchange as at 30 June 2008).

4. FINANCIAL EFFECTS OF THE ACQUISITION AND OPEN OFFER

Xchanging believes that the Acquisition will enhance the strategic positioning and future growth prospects of the Xchanging Group. The Enlarged Group will enjoy a number of strategic advantages which should allow it to generate incremental revenues. These include:

an enhanced global footprint and offshore presence which will provide access to significant new sales opportunities;

the opportunity to leverage Cambridge Solutions' US hub, offshore facilities and enhanced IT capability into additional partnering and outsourcing contracts; and

the opportunity to sell the Enlarged Group's offerings into South East Asia from a strengthened Australian/Singaporian base.

Xchanging believes that it will be able to improve Cambridge Solutions' margins through the application of its standardised approach to lean processing, productivity improvement and performance management. These methodologies will be applied across the Cambridge Solutions business and should drive specific productivity improvements in areas such as the US BPO business and help to generate scale benefits in the India BPO and IT services businesses as spare capacity is utilised.

Xchanging anticipates implementation and investments costs comparable to those incurred in the implementation phase of a new Enterprise Partnership (typically, some 10% of the revenue base, in this case c. £16 million). These costs will be incurred over the first two years following Completion.

On this basis the Xchanging Board expects that the combination with Cambridge Solutions will be accretive to earnings before one-off costs in the first full year after Completion. In addition, Xchanging expects the Acquisition to generate a return in excess of Xchanging's cost of capital from 2010 onwards. However, nothing in the preceding statements should be interpreted to mean that the earnings per share of the Enlarged Group for the coming or future financial years will necessarily be lower than, match or exceed the historic published earnings per Xchanging Share.

The cash element of the consideration will be funded from a combination of existing cash resources, which totalled £106.1 million as at 30 June 2008, as well as from an amended and restated financing facility with Lloyds TSB. Xchanging intends to draw down £40 million of its new £90 million bank facility with Lloyds TSB. Of this amount, £22 million is expected to represent the cost of refinancing part of the existing debt of Cambridge Solutions. Therefore, after taking into account a €20 million (£15 million) letter of credit that the Company has outstanding, this would leave the Enlarged Group with a further £35 million available for drawing under this facility. 

On gaining operational control, it is expected that the financial results of Cambridge Solutions will be fully consolidated within the financial results of Xchanging, with a minority interest recorded to reflect the proportion of Cambridge Solutions Shares that will remain in the hands of the sellers (if any) and the public.

5. SUMMARY OF THE TERMS OF THE ACQUISITION AND THE OPEN OFFER

The terms of the SPAs and requirements concerning the Open Offer will be summarised in the circular to be sent to Xchanging Shareholders in due course. Under the terms of the Scandent Holdings/AMPS SPA, Completion is conditional on, amongst other things:

approval of the Acquisition by Xchanging Shareholders in general meeting;

approval of The Reserve Bank of India;

receipt of certain consents from Her Majesty's Revenue and Customs and anti-trust authorities;

completion of the Open Offer;

Admission having occurred, subject only to it becoming effective in accordance with the Listing Rules; and

the appointment of David Andrews and Richard Houghton as directors of Cambridge Solutions after anti-trust clearances have been received and at such time as Xchanging may determine. It would be Xchanging's intention to make this determination at a time appropriate for Cambridge Solutions. At the same time, Christopher Sinclair and Satyen Patel would resign as directors of Cambridge Solutions and it is Xchanging's intention to appoint Christopher Sinclair as a senior advisor to the Xchanging Group to assist in the integration of Cambridge Solutions and to develop new business opportunities.

Completion of the Katra SPA is conditional primarily on the Scandent Holdings/AMPS SPA having become unconditional.

Assuming the various conditions are satisfied, the Company expects Completion to occur in Q2 2009.

The SPAs provide for the acquisition of, in aggregate, Cambridge Solutions Shares representing up to 75% of the fully diluted share capital of Cambridge Solutions as it exists at the date of the SPAs. To accommodate the Company's desire to acquire 75% of the fully diluted share capital of Cambridge Solutions as it exists at Completion, the SPAs provide for two adjustments to be made to the number of Cambridge Solutions Shares to be acquired. The first adjustment relates to the number of Cambridge Solutions Shares which are acquired by the Xchanging Group under the Open Offer and the second adjustment relates to any decrease in the fully diluted share capital of Cambridge Solutions in the period from the date of the SPAs to Completion. 

The maximum number of Cambridge Solutions Shares that may be acquired under the SPAs is 84,714,058 Cambridge Solutions Shares (being 72,206,909 Cambridge Solutions Shares under the Scandent Holdings/AMPS SPA and 12,507,149 Cambridge Solutions Shares under the Katra SPA). These are the numbers of Cambridge Solutions Shares that would be acquired if there were no acceptances under the Open Offer and no reduction in the fully diluted share capital of Cambridge Solutions in the period to Completion. If, however, Cambridge Solutions Shares are acquired under the Open Offer then the number of Cambridge Solutions Shares to be acquired under the SPAs is reduced on a one for one basis. Similarly, if there is a reduction in the fully diluted share capital of Cambridge Solutions in the period to Completion, the number of Cambridge Solutions Shares to be acquired under the SPAs is reduced by 0.75 for each Cambridge Solutions Share by which the fully diluted share capital is reduced.

The aggregate consideration for the maximum number of Cambridge Solutions Shares to be acquired under the SPAs will be approximately £83 million to be satisfied by payment of approximately Rs 3,712 million (£45 million) in cash and the issue of 15,249,998 New Xchanging Shares. The SPAs provide that the cash element of the consideration (but not the New Xchanging Shares element) will be reduced to compensate for any reduction in the number of Cambridge Solutions Shares acquired pursuant to the SPAs. 

In the event that, upon Completion, Xchanging has acquired more than 75% of the issued share capital of Cambridge Solutions, it is Xchanging's intention to reduce its holding to 75% of the issued share capital of Cambridge Solutions when required to do so in order to comply with the free float requirements applicable to Cambridge Solutions as a listed company.

6. INFORMATION RELATING TO THE XCHANGING GROUP

Xchanging is a pure play business processing company. We provide a range of complex industry-specific processing services to the insurance and financial markets, as well as procurement, finance and accounting, human resources and technology infrastructure services to customers across a range of industries. Xchanging has over 4,300 employees with operations in seven countries and customers in 35 countries.

Our go to market strategy is to provide a range of offerings to meet the varying needs of customers for outsourced services. Our unique offering for dealing with complexity and scale is Partnering. On top of this we provide four offerings for customer flexibility and repeatability - Outsourcing, Products, Straight Through Processing and Business Support. In short, a distinctive "1+4 Go to Market Strategy".

Partnering - Xchanging addresses complex industry-specific business processing and cross-industry processing in human resources, finance and accounting, technology infrastructure and large-scale procurement. Our Partnering offering is open book with profit sharing so that our interests are aligned with those of our partners.

Outsourcing - Xchanging takes on business processes or categories of spend where we already have platforms proving our capability and credibility. Through Outsourcing, we scale up our platforms and deliver services to an agreed specification and usage charge or cost baseline.

Products - Xchanging supports essential parts of the business processing value chain with application software, such as Genius for international insurance carriers. Our Products are long-term strategic assets that can be tailored for customers' specific needs. Products enable us to extend our reach both geographically and across the value chain.

Straight Through Processing - Xchanging extends the scope of the services delivered to customers, reducing the number of interfaces and where possible automating them. These additional services extend the process flow that Xchanging is already operating and enable us to maximise the efficiency of the whole process as a result.

Business Support - Xchanging offers the expertise to support specific business activities and customer improvement projects. Through Business Support, customers have access to Xchanging's expertise and re-usable assets. Business Support includes services such as corporate immigration support, resourcing, programme management and process improvement and Six Sigma training and support.

The above offerings are provided through our three sectors:

Business Lines - Our Business Lines platforms cover cross-industry processing services in the areas of human resources, procurement, finance and accounting and technology infrastructure. Business Lines' primary customers include BAE Systems, National Australia Group Europe and United Biscuits.

Insurance - Our Insurance platform is one of the leading providers of BPO services and software in international commercial insurance markets. In 2007, the Xchanging Group handled over four million insurance premium and claim transactions between brokers and underwriters operating in marine, aviation and non-marine sectors of the London insurance market, having a combined value of over £45 billion. We believe that we are well placed to capitalise on the transition from paper-based processing to electronic processing in the London insurance market.

We provide insurance services from locations in the UK, India, the United States and Malaysia. The offshore operations have grown rapidly over the past two years and currently support the business by handling software development, policy, premium, claims and accounts processing services.

Financial Markets - Our Financial Markets platforms cover banking and asset management operations and software. Processing services are provided both directly to financial institutions and on their behalf to the end customers. Retail securities processing services are undertaken by Xchanging Transaction Bank, which has a full German Financial Services Regulatory Authority (BaFin) banking licence. Retail investment account management services are undertaken by Xchanging Fondsdepot Bank, which has a partial banking licence.

Financial Information

For the year ended 31 December 2007, Xchanging reported strong revenue growth, increasing 19.0% to £468.2 million (2006: £393.5 million). Growth was predominantly organic with acquisitions accounting for less than 1%. XEBIT grew by 42.5% to £31.6 million (2006: £22.2 million). This represented an XEBIT operating margin of 6.8% (2006: 5.6%). XPAT grew by 33.2% to £22.8 million (2006: £17.1 million). This represented an XPAT margin of 4.9% (2006: 4.4%).

On 31 July 2008, Xchanging released its half year results for the six months ended 30 June 2008. Revenue for the period was £266.8 million, an increase of 20% on the previous half year (H1 2007: £222.4 million). The impact of the Fondsdepot Bank (FDB) Enterprise Partnership made a significant contribution to this increase.

XEBIT grew 44% to £15.3 million (H1 2007: £10.6 million). XEBIT margins increased by 90 basis points from 4.8% to 5.7%, helped by revenue growth, productivity improvements and reductions in central costs. XPAT grew by 48%. Pro forma earnings per share grew 43% to 5.56p from 3.89p.

7. CURRENT TRADING, TRENDS AND PROSPECTS OF XCHANGING AND CAMBRIDGE SOLUTIONS

Xchanging

The Xchanging Half Year Report contained the following statement:

"Our insurance and banking platforms are developing leading positions in their respective markets and our procurement business continues to scale rapidly. Innovation through technology is creating a competitive advantage for Xchanging and is also providing new revenue opportunities. Given our strong pipeline, we expect our rapid growth to continue, despite current economic conditions, and we remain confident in the outlook for the full financial year and beyond."

Subsequent to the announcement, revenues have continued to perform well. Overall, the financial performance outlook for the year is expected to be in line with the Xchanging's Board's expectations.

Cambridge Solutions

The press release issued on 31 July 2008 containing Cambridge Solutions' quarterly results for the three months ended 30 June 2008 stated that Cambridge Solutions expects continuing performance improvements through the year on the back of a solid pipeline and cost optimisations in the IT services division and US BPO and continuing strength in the Australian and Indian operations of its BPO division.

The Enlarged Group

The Xchanging Board believes the Acquisition complements Xchanging's existing operations and will enhance the strategic position and growth prospects of the Enlarged Group, adding a greater international footprint, breadth of business process resources and enhanced IT services capabilities.

8. DETAILS OF KEY INDIVIDUALS IMPORTANT TO CAMBRIDGE SOLUTIONS' BUSINESS

ENQUIRIES:

Citigroup Global Markets Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as exclusive financial adviser and joint broker to Xchanging and no one else in connection with the Acquisition and will not be responsible to anyone other than Xchanging for providing the protections afforded to its clients nor for providing advice in relation to the Acquisition.

UBS Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as joint broker to Xchanging and no one else in connection with the Acquisition and will not be responsible to anyone other than Xchanging for providing the protections afforded to its clients nor for providing advice in relation to the Acquisition.

NOTES

DEFINITIONS

The following definitions apply throughout this document, unless the context requires otherwise: