XCH.L Regulatory News (XCH)

31 Jul 2008 07:00

XCHANGING PLC

RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008

We have continued our rapid growth in revenues and profits and our prospects for the rest of the year are strong.

Highlights for the period:

Continuing track record of strong revenue and profit growth 

Implementation success of Allianz Global Investors Partnership

Insurance success adding Cooper Gay as a third party broking client

Continued broadening of our electronic processing capabilities

Acquisition of Mercuris SA, a Paris-based procurement services provider.

David Andrews, CEO of Xchanging, commented: "We are pleased with our results for the first half of 2008. 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."

Notes:

(1) H1 2007 statutory operating profit of £7.6m is post exceptional IPO items of £5.9m.

(2) Adjusted operating profit excludes exceptional items and certain non-cash items, which comprise share-based payment charges of £1.0m (H1 2007: £0.2m) and amortisation of intangible assets previously unrecognised by acquired entities. A detailed reconciliation to statutory operating profit is provided in the section 'Shareholder value - key performance indicators' below.

(3) Adjusted profit after tax incorporates add backs to profit for the period comprising of exceptional items, amortisation of intangible assets previously unrecognised by acquired entities, share-based payment charges, imputed interest on put options, imputed interest on employee loans and the related tax thereon. A detailed reconciliation to statutory operating profit for the period is provided in the section 'Shareholder value - key performance indicators' below.

(4) Pro forma adjusted EPS - diluted for the period ended 30 June 2007 is calculated by adding the weighted average number of shares issued between IPO and 30 June 2007 to the actual number of shares in issue at IPO. See 'Pro forma adjusted earnings per share' below for further information. Statutory EPS numbers are disclosed in Note 5 to the financial information below.

31 July 2008

Enquiries:

Xchanging plc
David Andrews, Chief Executive Officer
Richard Houghton, Chief Financial Officer	Tel: 020 7780 6999
Tulchan Communications
David Allchurch	Tel: 020 7353 4200
Stephen Malthouse

A presentation for investors and analysts will be held at Xchanging's offices at 34 Leadenhall Street, London, EC3A 1AX at 09:30 on 31 July 2008.

About Xchanging

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

Xchanging plc

Half Year Results for the 6 months to 30 June 2008

It has been a successful first half of 2008 for the Group. Revenue for the six months ended 30 June 2008 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 has made a significant contribution to this increase. 

Adjusted operating profit attributable to Xchanging shareholders (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. Adjusted profit after tax attributable to Xchanging shareholders (XPAT) grew by 48%. Pro forma earnings per share grew 43% to 5.56p from 3.89p.

The Group has sufficient resources to fund the continued rapid growth of the business and to invest in improving our operational performance, thereby maximising shareholder value. In addition, our strong balance sheet gives us the ability to make value enhancing acquisitions to complement the existing business.

The market

 

Success across the sectors

Insurance

Xchanging has generated a number of insurance wins in the first half of 2008. A key contract was signed with Cooper Gay to provide broker back office services and will see up to 65 Cooper Gay roles in accounting, claims and technical processing transfer to Xchanging from the broker's offices in London and Rayleigh, Essex. This is an important contract as it validates the broking platform established in late 2006. 

In terms of our international footprint, Xchanging now has over 35 customers in the USA and Bermuda and ten customers in the Asia Pacific region. Insurance volumes are growing in both Bermuda and Singapore. Xchanging has also made advances in providing additional services to the Bermuda insurance market.

Good progress has been made in broadening our electronic processing capabilities in the London Market. Investment in the Insurance Market Repository will allow greater volumes of electronic submissions and this is expected to generate additional revenues in 2009.

We have also signed a number of Business Support contracts with new and existing customers such as ACE and Lloyd's.

Business Lines

Business Lines has had a number of successes in the first half. Xchanging Hosting Services has completed a five-year deal with Northgate Arinso UK Ltd, the UK and Ireland's leading supplier of HR, Payroll and Pensions software solutions and services, to deliver Mainframe and BACS processing services for a value of in excess of £10 million. Xchanging's Basildon Processing Centre will be providing 24/7 mainframe operations and support. 

Xchanging Procurement Services and the Birds Eye Group have entered into a three-year Business Support services agreement for the management of Birds Eye's utilities spend in the UK.  A number of additional Business Support customers have contracted Xchanging to provide immigration support services. 

Revenues have also benefited from broadening services delivered to our existing customer base. 

Financial Markets

Financial Markets has grown strongly in the first half. In November 2007, Xchanging took control of Fondsdepot Bank (FDB), its Enterprise Partnership with Allianz Global Investors which provides retail investment account management services. Since the deal was signed, FDB's third party (non-Allianz Global Investors) accounts have grown more than 15% from circa 78,000 to circa 90,000 accounts. The corresponding assets under management (AuM) for third party accounts grew, despite depressed market capitalisations on stock markets, from €1,594 billion at year end to €1,702 billion at 30 June 2008.  This growth was accompanied by nine newly signed distribution agreements with broker pools and Independent Financial Advisors (IFAs).

 

Driving electronic processing success in the insurance market

We are becoming the leading commercial insurance processor globally. From our strong position in the London Insurance market, we are capitalising on the unique electronic platform we have created. 

 

Already, we are the largest international insurance business processor handling over four million insurance premium and claims transactions annually and settling over £45 billion of insurance transactions.

Xchanging's Insurance Market success is demonstrated by the significant achievements made in London moving from a paper-based to an electronic platform. Examples of this include:

Over 75,000 ACORD electronic messages per week are now submitted from more than 100 brokers to the Insurers' Market Repository making it the highest volume of its kind in commercial insurance 

Xchanging has won two ACORD 2008 Accomplishment Awards in the categories Industry Leadership for Straight Through Processing and Outsourcer

In Q2 2008, the Repository service published 2.5 million web pages a week

90% of original premiums are submitted via the Repository 

Over 160 customers are now connected to the Xchanging Distribution Hub.

Heart of the European financial markets

We are at the heart of the change in the banking landscape in Europe. Our early move into Germany, Italy and France puts us in the vanguard of business processors for banks. With our blue-chip banking customer base, we are well positioned to be at the forefront of consolidation, regulatory compliance and safer, cheaper processing.

Xchanging is the largest commercial processor in European securities and investment account processing with highly reliable electronic platforms. We are one of the highest volume German securities platforms, settling an estimated 15% of German securities transactions. In addition, we have over 1.3 million active securities accounts and process over 3.3 million annual tax statements.

The acquisition of the Mercuris business in France increased the breadth of services we are providing to the European banking industry and we are now managing over €400 million in spend for one of the leading universal banks in France. 

Global Balancing

Xchanging's distinctiveness is in combining local service demands with global production effectiveness. We achieve this with an integrated on-site, nearshore and offshore production capability. Xchanging currently has 18% of its people in offshore facilities and 60% are in specialist nearshore centres, enabling us to deliver around the clock, efficient processing services. 

All Xchanging's business processing follows a standard industrialised approach, whereby our processing centres are driven towards using the same tools and methods. By doing so, we share resources and optimise performance.  Xchanging is a leader in operating globally integrated production platforms to the highest standards demanded by the regulated industries we serve.

Executing on our strategy to build shareholder value

Xchanging is well placed to exploit significant market opportunities over the next three to five years that we believe will arise as a result of the difficult economic conditions. Our strategy is threefold:

Growing our existing platforms in Commercial Insurance, Financial Markets, HR, Procurement, Accounting and Hosting

Adding new platforms in new processes, new geographies or new industry sectors

Becoming the lean processor in each major area of service through standardisation, scale and our Global Balancing approach.

We are always looking for suitable acquisition opportunities to accelerate our strategy towards becoming the premier global business processor. Consistent with this strategy, on 1 July we confirmed that we were in preliminary discussions with Cambridge Solutions. These discussions have continued but there is no certainty that any transaction will be forthcoming.

At the centre of our strategy is the unique Xchanging Way for defining and measuring performance. As a result, we have a scalable business that can deliver services consistently to our customers globally; drive growth in revenues and profitability; and create value for our shareholders.

Group risk factors

As with all businesses, the Group is affected by certain risks, which could have a material impact on the Group's long term performance and could cause actual results to differ materially from forecast and historic results.

The principal risks and uncertainties facing the Group have not changed from those set out in the Annual Report and Accounts 2007. These include the risks associated with attracting new customers, implementation of large contracts, continuation of efficient processing, exposure to complex and technical contractual terms, successful retention of key employees, continuity and security of IT systems, and regulatory and legislative changes. For a full discussion of the risks to our future business performance, please refer to page 29 of our Annual Report and Accounts 2007, or go to www.xchanging.com.

Outlook

Excellent future prospects for Xchanging

We remain positive about the growth prospects for the business. Xchanging has established a strong reputation in the fast growing global business processing market. We have enhanced our international delivery capabilities and expect our global business processing competence to put Xchanging in the forefront of our sector.

We have high levels of revenue visibility and despite the difficult economic climate, the market for our services remains active and our existing businesses are well placed to deliver organic growth and margin upside. We therefore remain confident in the outlook for the full financial year.

Furthermore, our pipeline reflects an increasing volume of new opportunities, which combined with our strong competitive position and clear strategy bodes well for 2009 and 2010.

Shareholder value - key performance indicators (KPIs)

The Group's KPIs are detailed below 

 

 

Revenue growth

Revenue for the six months ended 30 June 2008 was £266.8 million, an increase of 20% over the same period last year (H1 2007: £222.4 million), of which 3% (£6.7 million) is a result of favourable movements in our major trading currencies, in particular the Euro. Revenue growth was predominantly organic, with acquisitions accounting for less than 1%. Contracts won in the second half of 2007 (particularly the Fondsdepot Bank Enterprise Partnership) have made a major contribution to this increase along with strong volume growth particularly in our banking and procurement businesses.

Revenue visibility at the half year was £492.4million (H1 2007: £444.8 million). The Group uses a revenue visibility measure which represents revenue which can reasonably be expected to arise in the year from current customers where we have in place a contractual relationship.

Strong profit growth

Group operating profit grew 34% to £18.0 million (H1 2007: £13.4 million pre exceptional items). Adjusted operating profit grew 39% to £19.3 million (H1 2007: £13.9 million) representing an operating margin of 7.2% (H1 2007: 6.3%).

XEBIT has grown 44% to £15.3 million (H1 2007: £10.6 million). This represents an XEBIT operating margin of 5.7% (H1 2007: 4.8%).

Xchanging's share of profit after tax (XPAT) grew 48% to £12.4 million (2007: £8.4 million). This represents an XPAT margin of 4.6% (2007: 3.8%).

The tables below detail the adjustments to operating profit to determine XEBIT and XPAT:

XEBIT		6 months ended 30 June 2008	6 months ended 30 June 2007
		£m	£m
XEBIT		15.3	10.6
Adjusted profit after taxation attributable to minority interests		4.0	3.3
Adjusted operating profit		19.3	13.9
Less:
	IPO exceptional items	0.0	(5.9)
	Share-based payment charges	(1.0)	(0.2)
	Other add backs	(0.3)	(0.2)
Statutory operating profit		18.0	7.6
XPAT		6 months ended 30 June 2008	6 months ended 30 June 2007
		£m	£m
XPAT		12.4	8.4
Adjusted profit after taxation attributable to minority interests		3.1	2.3
Adjusted operating profit		15.5	10.7
Less:
	IPO exceptional items	0.0	(6.3)
	Share-based payment charges	(1.0)	(0.2)
	Other add backs	(0.3)	(0.7)
Tax effect of above		0.4	0.8
Statutory profit for the period		14.6	4.3

Margins

XEBIT margins have increased by 90 basis points to 5.7% (H1 2007: 4.8%). There are a number of factors driving this improvement. Underlying operating margins have increased due to revenue growth and improvements in productivity. This has been complemented by a reduction in central costs, both in absolute terms and as a percentage of revenues. However, these positive drivers of margin have been offset by the dilutive margin impact of the new Fondsdepot Bank Enterprise Partnership and a lower contribution from Business Support.

Pro forma adjusted earnings per share

When calculating earnings per share, the Group considers it appropriate to use XPAT as it represents the underlying performance of the business. The Group utilises a pro forma number of shares as the 2007 first half average number of shares is impacted by the change in capital structure resulting from the IPO, which completed during that period.

Consequently, a pro forma analysis is set out below to show how the Group's 2007 first half earnings per share would have been calculated had the Group's post IPO capital structure been in place from the start of 2007. The pro forma number of shares for the period ended 30 June 2007 has been calculated by adding the weighted average number of shares issued between IPO and 30 June 2007 to the actual number of shares in issue at IPO.

Pro forma adjusted basic / diluted earnings per share	6 months ended 30 June 2008	6 months ended 30 June 2007
XPAT	£12.4m	£8.4m
Pro forma number of shares in issue	215.1m*	206.5m
Pro forma adjusted basic earnings per share (pence)	5.77p	4.06p
XPAT	£12.4m	£8.4m
Pro forma diluted number of shares	223.7m*	215.2m
Pro forma adjusted diluted earnings per share (pence)	5.56p	3.89p
* Weighted average number of shares

Management believes that the pro forma earnings per share provides the best picture of the underlying performance of the business for the two periods. On a pro forma basis, diluted adjusted earnings per share has grown 43% to 5.56p (2007: 3.89p).

Finance income

Net finance income (pre exceptional items, imputed interest on put options and imputed interest on employee loans) increased to £2.6 million (H1 2007: -£0.4 million). Finance income has increased due to interest earned on higher cash balances generated from the strong cash conversion of the increased profitability of the Group, and as a result of primary funding received from the IPO during the first half of 2007. Finance costs have decreased as the Group carried no material debt commitments during the period. During the first half of 2007, the Group incurred actual and imputed interest on the deferred consideration of £47 million for the acquisition of the minorities of one of the BAE Systems partnerships, which was settled on 11 May 2007.

Taxation

The Group's effective tax rate on Xchanging's share of adjusted operating profit before tax was 30.1% (H1 2007: 25.0%). 

The Group's statutory effective tax rate was 29.8% for the period (H1 2007: 39.0%), this was lower than the prior year due to the IPO exceptional items in 2007, some of which were deemed disallowable.

Segmental Performance

Business Lines

Business Lines revenue grew 18% for the period to £121.3 million (H1 2007: £102.6 million) primarily through strong organic growth in procurement revenue. Procurement revenue has continued to grow through increased volumes from existing long term customers and the full effect of new contracts, which were in the process of being implemented during the course of the previous period. The acquisition of Mercuris, which was effective from 1 January 2008, contributed £1.5 million to sector revenue for the period. With the majority of the revenue generated in the UK, there was no material foreign exchange impact on the revenue performance of Business Lines.  

XEBIT for the period increased 19% to £8.6 million (H1 2007: £7.2 million). Growth in Business Lines XEBIT has been driven by the growth in procurement revenue and an improvement in procurement margins. Growth in XEBIT was diluted during the period as a result of implementation costs related to the integration of payroll contracts associated with the University Hospital Birmingham contract.

XEBIT margin remained at 7.1% (H1 2007: 7.1%), with growth in procurement margins being offset by implementation costs in the HR business.

Insurance

Insurance revenue for the period was similar to the prior period at £81.4 million (H1 2007: £81.1 million). During the period, the sector experienced robust claims volumes and growth in straight through processing, in particular in Xchanging Broking Services (XBS), the Enterprise Partnership with Aon. Automation of insurance processes continues to drive growth in revenue from the electronic handling of premiums and claims, with further development of insurance market technology infrastructure also providing growth for the sector. Revenue growth during the period offset the adverse impact of the increase in discounts to Aon and the run off of certain policy preparation revenue resulting from regulatory changes.

XEBIT for the period increased 19.3% to £8.7 million (H1 2007: £7.4 million). Offshoring and productivity improvements have improved profitability in XBS, which entered its second full year of operation. XEBIT has also grown through underlying revenue growth, offsetting the effect on profitability of increased discounts in XBS and the run off of certain policy preparation services . Adjusted operating profit grew during the period by 15.5% to £12.7 million (H1 2007: £11.0 million). 

 

Financial Markets

Financial Markets revenue grew for the period by 57% to £72.3 million (H1 2007: £45.9 million), primarily as a result of revenue contributed by Fondsdepot Bank (FDB), the retail investment account management Enterprise Partnership with Allianz Global Investors, which commenced on 1 November 2007.

XEBIT for the period increased 8% to £6.3 million (H1 2007: £5.8 million), with strong securities processing transaction volumes offsetting the impact of the increased discount to Deutsche Bank. XEBIT has been impacted during the period due to the implementation costs for FDB. Adjusted operating profit grew during the period by 15% to £6.3 million (H1 2007: £5.5 million).

XEBIT margin declined for the period to 8.7% (H1 2007: 12.7%) as a result of the dilutive effect of FDB, which has contributed a significant increase in revenue during the period but on a near break even basis (as is expected in its first year of operation of a new Enterprise Partnership). Excluding the effect of FDB, margins would have increased to 13.2% (H1 2007: 12.7%). Adjusted operating margin declined during the period to 8.7% (H1 2007: 12.0%) due to the dilutive effect of FDB.

Corporate and Business Processing Services (BPS)

Corporate and BPS costs declined for the period by 18% to £8.3 million (H1 2007: £9.8 million). Corporate costs declined as the implementation of XBS was materially completed during 2007, reducing implementation costs during the current period. In addition, business development costs in Australia reduced during the period as a permanent presence in Adelaide was established through the procurement business. 

Corporate and BPS costs were also favourably impacted by our Indian business, which operated on a break even basis during the period. In the comparable period last year, the business was operating at a loss due to start up costs.

Depreciation and amortisation charges reduced during the period as investments made by Corporate, while the Xchanging Group was initially being established, are fully written down and new investment is made primarily by the operating segments.

Operating cash flow

The business continued to be strongly cash generative with reported net cash flow from operations increasing by 49% to £34.2 million (H1 2007: £22.9 million).

	6 months ended 30 June 2008	6 months ended 30 June 2007
Cash conversion	£m	£m
Cash flows from operating activities	34.2	22.9
Adjusted operating profit	19.3	13.9
Cash conversion	177%	165%

Cash performance is measured using a cash conversion ratio, calculated as cash generated from operations divided by the Group's adjusted operating profit. Cash conversion improved to 177% (H1 2007: 165%). Cash conversion is typically stronger in the first half of the year as it is influenced by the prepayment of annual service charges in the form of subscriptions in some of the operating businesses, primarily in the Insurance sector.

Free cash flow, defined as operating cash flow less capital expenditure, interest and taxation, increased by 70% to £21.6 million (H1 2007: £12.7 million).

Capital Expenditure

The Group invested £12.8 million (H1 2007: £6.4 million) in capital expenditure on tangible and intangible assets during the period, representing 4.8% (2007: 2.9%) of revenue. Capital was invested across the Group, most significantly in the Financial Markets sector to address regulatory tax changes, which will generate additional service revenue from 2009, and in support of new business such as the Sparda contract renewal and FDB. The Group has also continued to invest in developing products, technology and infrastructure for the electronic handling of policies and claims for the London Insurance market, where we also expect to generate incremental revenue from 2009.

The depreciation and amortisation charges of £8.2 million (H1 2007: £6.6 million) represented 3.1% (H1 2007: 3.0%) of revenue.

The Group capitalised £0.2 million (H1 2007: £0.1 million) as pre-contract costs, which are disclosed as trade and other receivables in the statutory accounts. Costs directly attributable to winning a contract are capitalised when it is virtually certain that the contract will be awarded. These costs are amortised over the life of the contract; the amortisation charge for the period was £0.6 million (H1 2007: £0.6 million).

Cash

Cash held by the Group at the period end was £106.1 million (FY 2007: £98.4 million) of which £59.3 million (FY 2007: £57.5 million) was centrally controlled cash (excluding cash held by Enterprise Partnerships). The Group maintains a £35 million debt facility of which £20 million is available to draw down.

  Consolidated income statement

for the 6 months ended 30 June 2008

		Unaudited
		6 months   ended 30  June 2008	6 months   ended 30  June 2007
	Note	£'000	£'000
Revenue	3	266,822	222,437
Cost of sales		(240,139)	(201,006)
Gross profit		26,683	21,431
Administrative expenses - before exceptional items		(8,645)	(7,987)
Administrative expenses - exceptional items	4	-	(5,891)
Administrative expenses		(8,645)	(13,878)
Operating profit	3	18,038	7,553
Finance costs - before exceptional items		(4,756)	(5,670)
Finance costs - exceptional items	4	-	(439)
Finance costs		(4,756)	(6,109)
Finance income		7,459	5,692
Profit before taxation		20,741	7,136
Taxation		(6,184)	(2,809)
Profit for the period	3	14,557	4,327
Attributable to:
- equity holders of the Company		11,420	1,976
- minority interests		3,137	2,351
		14,557	4,327
Earnings per share (expressed in pence per share)
- basic	5	5.31	1.11
- diluted	5	5.10	1.05

  

Notes 1 to 12 form an integral part of this condensed consolidated interim financial information.

 

  Consolidated statement of recognised income and expense

for the 6 months ended 30 June 2008

 

		Unaudited
		6 months ended 30 June 2008	6 months ended 30 June 2007
	Note	£'000	£'000
Actuarial gains arising from defined benefit pension schemes		950	12,072
Movement on deferred tax relating to defined benefit pension schemes		(331)	(3,735)
Revaluation of available-for-sale financial assets		(2,075)	874
Deferred tax on revaluation of available-for-sale financial assets		105	238
Currency translation differences		2,132	114
Net income recognised directly in equity		781	9,563
Profit for the period	3	14,557	4,327
Total recognised income for the period		15,338	13,890
Attributable to:
- equity holders of the Company	10	12,587	10,233
- minority interests	10	2,751	3,657
	10	15,338	13,890

 

Notes 1 to 12 form an integral part of this condensed consolidated interim financial information.

 

  Consolidated balance sheet

as at 30 June 2008

 

		Unaudited	Audited
		30 June 2007	31 December 2007
	Note	£'000	£'000
Assets
Non-current assets
Goodwill	7	92,505	85,620
Intangible assets	7	44,683	39,053
Property, plant and equipment	7	17,501	16,444
Available-for-sale financial assets		23,035	23,609
Trade and other receivables		5,597	6,056
Retirement benefit assets		3,883	6,158
Deferred income tax assets		17,138	16,894
Total non-current assets		204,342	193,834
Current assets
Trade and other receivables		90,783	100,855
Cash and cash equivalents		106,094	98,366
Total current assets		196,877	199,221
Liabilities
Current liabilities
Trade and other payables		(96,341)	(98,989)
Current income tax liabilities		(4,789)	(1,609)
Borrowings	8	(1,418)	(856)
Provisions	9	(7,147)	(8,141)
Net current assets		87,182	89,626
Total assets less current liabilities		291,524	283,460
Non-current liabilities
Trade and other payables		(10,456)	(9,974)
Financial liabilities
- borrowings	8	(1,043)	(655)
- other liabilities	8	(18,705)	(17,865)
Deferred income tax liabilities		(4,916)	(4,837)
Retirement benefit obligations		(12,521)	(14,836)
Provisions	9	(12,782)	(13,375)
Net assets		231,101	221,918
Shareholders' equity
Ordinary shares		10,789	10,740
Share premium		74,410	73,715
Merger reserve		409,672	409,672
Reverse acquisition reserve		(312,238)	(312,238)
Other reserves		12,204	11,032
Retained earnings		22,107	13,661
Total shareholders' equity		216,944	206,582
Minority interest in equity		14,157	15,336
Total equity	10	231,101	221,918

Notes 1 to 12 form an integral part of this condensed consolidated interim financial information.

  Consolidated cash flow statement

for the 6 months ended 30 June 2008

	Unaudited
	6 months   ended 30  June 2008	6 months   ended   30  June 2007
	£'000	£'000
Cash flows from operating activities
Cash generated from operations	34,212	22,923
Income tax paid	(2,561)	(4,613)
Net cash from operating activities	31,651	18,310
Cash flows from investing activities
Acquisition expenses	(391)	(553)
Acquisition cost of minority interests in subsidiaries	-	(56,934)
Acquisition cost of subsidiaries	(5,944)	(508)
Cash and cash equivalents acquired with subsidiaries	627	-
Purchase of property, plant and equipment	(4,585)	(2,431)
Purchase of intangible assets	(8,238)	(3,943)
Pre-contract expenditure	(235)	(78)
Proceeds from sale of property, plant and equipment	207	16
Interest received	3,391	1,973
Net cash used in investing activities	(15,168)	(62,458)
Cash flows from financing activities
Proceeds from issue of shares	744	81,998
Transaction costs of shares issued	-	(4,279)
Proceeds from issue of warrants in subsidiary	124	-
Interest paid	(424)	(1,147)
Dividends paid to minority interests	(3,930)	(3,072)
Dividends paid to equity shareholders	(4,297)	-
Net cash (used in)/from financing activities	(7,783)	73,500
Effects of exchange adjustments	(972)	1
Net increase in cash and cash equivalents	7,728	29,353
Cash and cash equivalents at 1 January	98,366	58,684
Cash and cash equivalents at 30 June	106,094	88,037

Notes 1 to 12 form an integral part of this condensed consolidated interim financial information.

Notes to the consolidated financial information

for the 6 months ended 30 June 2008

 

(i) General information

Xchanging plc is a limited liability company incorporated and domiciled in the UK. The address of its registered office is 13 Hanover Square, London, W1S 1HN. The Company's ordinary shares are traded on the London Stock Exchange.

The condensed consolidated interim financial information was approved for issue on 31 July 2008. This condensed consolidated interim financial information has been reviewed, but not audited.

(ii) Accounting policies

This condensed consolidated interim financial information for the half year ended 30 June 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority, and with IAS 34, "Interim financial reporting" as adopted by the European Union. This condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2007, which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The accounting policies adopted in the preparation of this condensed consolidated interim financial information are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2007. The accounting policies are drawn up in accordance with International Accounting Standards (IAS) and IFRS as endorsed by the European Union.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning on 1 January 2008, but have no material impact on the Group:

IFRIC 11, "IFRS 2 - Group and treasury share transactions"

IFRIC 12, "Service concession arrangements"

IFRIC 14, "IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction".

The financial information included in this interim financial report does not constitute full financial statements within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 2007 were approved by the Board for issue on 25 February 2008 and have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 237 of the Companies Act 1985.

The Group has three reportable business sectors for financial reporting purposes: Insurance, Financial Markets and Business Lines. In both of the Insurance and Financial Markets sectors, the Group provides industry specific BPO services and software to customers. Business Lines is a cross-industry sector in which the Group provides procurement, human resources, finance and accounting and IT hosting services. These three operating sectors are supported by the Group's offshore business processing services facility ("BPS") and "Corporate", which provides the infrastructure, resources and investment to sustain and grow the business, including Group-level sales and commercial, performance management, implementation and business management functions.

		Unaudited
		Business Lines	Insurance	Financial Markets	BPS and Corporate	Total
Six months ended 30 June 2008		£'000	£'000	£'000	£'000	£'000
Revenue		121,330	81,384	72,250	342	275,306
- from external customers		113,774	80,484	72,222	342	266,822
- inter segment		7,556	900	28	-	8,484
Adjusted operating profit/(loss)		8,611	12,735	6,266	(8,307)	19,305
Adjusted operating profit percentage		7.1%	15.6%	8.7%		7.2%
Adjustment of certain non-cash items:
- share-based payments	(224)		(249)	(142)	(386)	(1,001)
- amortisation of intangible assets previously unrecognised by an acquired entity	(222)		(44)	-	-	(266)
Operating profit/(loss)	8,165		12,442	6,124	(8,693)	18,038
Allocation of central costs:
- investment in Enterprise Partnerships	-		(24)	-	24	-
- depreciation and amortisation	(248)		(586)	(264)	1,098	-
- other	(11)		234	(647)	424	-
Segment result	7,906		12,066	5,213	(7,147)	18,038
Finance costs						(4,756)
Finance income						7,459
Taxation						(6,184)
Profit for the period						14,557

		Unaudited
		Business Lines	Insurance	Financial Markets	BPS and Corporate	Total
Six months ended 30 June 2007		£'000	£'000	£'000	£'000	£'000
Revenue		102,579	81,099	45,895	-	229,573
- from external customers		96,523	80,151	45,763	-	222,437
- inter segment		6,056	948	132	-	7,136
Adjusted operating profit/(loss)		7,249	10,978	5,511	(9,815)	13,923
Adjusted operating profit percentage		7.1%	13.5%	12.0%		6.3%
Exceptional items		(120)	(66)	(23)	(5,682)	(5,891)
Adjustment of certain non-cash items:
- share-based payments	(59)		(58)	(18)	(124)	(259)
- amortisation of intangible assets previously unrecognised by an acquired entity	(157)		(63)	-	-	(220)
Operating profit/(loss)	6,913		10,791	5,470	(15,621)	7,553
Allocation of central costs:
- investment in Enterprise Partnerships	-		(748)	-	748	-
- depreciation and amortisation	(185)		(127)	(351)	663	-
- other	(521)		(632)	(613)	1,766	-
Segment result	6,207		9,284	4,506	(12,444)	7,553
Finance costs						(6,109)
Finance income						5,692
Taxation						(2,809)
Profit for the period						4,327

4 Exceptional costs

 

	Unaudited
	6 months ended 30 June 2008	6 months ended 30 June 2007
	£'000	£'000
Exceptional costs included in administrative expenses comprise the following:
Costs in relation to the IPO	-	3,679
Costs related to the share gift to employees by the CEO	-	2,212
Total exceptional costs included in administrative expenses	-	5,891
Exceptional costs included in finance costs comprise the following:
Costs in relation to the IPO	-	439

The IPO costs incurred in the 6 month period ended 30 June 2007 relate to specific expenses incurred in listing the Group on the London Stock Exchange. The charge within administrative expenses consisted mainly of legal and professional advisers fees of £3,000,000. It also included elements of staff bonuses granted to certain employees in recognition of their contribution to the IPO process and IFRS 2 charges on early option exercises as a direct result of the IPO.

Upon the successful listing of Xchanging on the London Stock Exchange, the CEO, David Andrews, gave every qualifying Xchanging employee 200 of his own personal Xchanging shares. This gift fell within the scope of IFRS 2 and consequently the Group incurred an accounting charge equivalent to the value of the shares at the date of the gift.

The finance cost element in the period ended 30 June 2007 related to adjustments made to existing onerous lease provisions following a change in the discount rate used to calculate the present value of these provisions. This change in discount rate was a direct result of the IPO.

5 Earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares of Xchanging plc and, for periods prior to 30 April 2007, the weighted average number of Xchanging BV shares as converted into Xchanging plc shares.

For diluted earnings per share, the weighted average number of ordinary shares in existence is adjusted to include all dilutive potential ordinary shares. The Group has four types of potential dilutive ordinary shares: share options, share awards under the Performance Share Plan to the extent that the performance criteria for vesting of the awards are expected to be met, convertible debt and warrants. Prior to listing on the London Stock Exchange, the warrants were exercised and the debt was converted into ordinary shares.

		Unaudited
		Earnings	Weighted average number of shares	Earnings per share
		£'000	thousands	pence
Basic earnings per share:
- 30 June 2008		11,420	215,091	5.31
- 30 June 2007		1,976	178,016	1.11
Diluted earnings per share:
- 30 June 2008		11,420	223,706	5.10
- 30 June 2007		1,976	188,282	1.05

The following reflects the share data used in the basic and dilutive earnings per share calculations:

						Unaudited
						6 months ended 30 June 2008	6 months ended 30 June 2007
						thousands	thousands
Weighted average number of ordinary shares for basic and adjusted earnings per share						215,091	178,016
Dilutive potential ordinary shares:
- employee share options						7,963	8,764
- awards under Performance Share Plan						652	-
- unexercised warrants						-	1,502
Weighted average number of ordinary shares for dilutive earnings per share						223,706	188,282

  Adjusted basic and diluted earnings per share

In addition to the above, an adjusted earnings per share value is disclosed to provide a better understanding of the underlying trading results of the Group. This adjusted value is in line with the KPIs as used to measure the Group's performance.

				Unaudited
				Earnings	Weighted average number of shares	Earnings per share
				£'000	thousands	pence
Adjusted basic earnings per share:
- 30 June 2008				12,408	215,091	5.77
- 30 June 2007				8,374	178,016	4.70
Adjusted diluted earnings per share:
- 30 June 2008				12,408	223,706	5.55
- 30 June 2007				8,374	188,282	4.45

The adjusted earnings per share figures are calculated based on the Xchanging adjusted profit after tax (XPAT), divided by the basic and diluted weighted average number of shares as stated above.

The XPAT is calculated as follows:

					Unaudited
					6 months  ended  30  June 2008	6 months   ended  30  June 2007
					£'000	£'000
Net profit attributable to Xchanging equity holders					11,420	1,976
Exceptional items (net of tax)					-	5,777
Employee share-based payments (net of tax)					721	181
Amortisation of intangible assets previously unrecognised by an acquired entity (net of tax)					186	154
Imputed interest on historical debt (net of tax)					-	204
Imputed interest and fair value adjustments on put options (net of tax)					223	187
Imputed interest on employee loans through the Share Purchase Plan (net of tax)					(142)	(105)
Adjusted net profit attributable to Xchanging plc equity holders					12,408	8,374

6 Dividends paid

A dividend relating to the year ended 31 December 2007, amounting to £4,297,000 (2007: £nil), was paid on 30 May 2008, to members registered at the close of business on 2 May 2008.

7 Capital expenditure

(i) Intangible assets

	Goodwill	Intangible  assets	Total
	£'000	£'000	£'000
Opening net book amount at 1 January 2007	29,362	28,471	57,833
Acquisitions	55,572	9,602	65,174
Additions	-	8,710	8,710
Depreciation, amortisation and other movements (including exchange adjustments)	686	(7,730)	(7,044)
Closing net book amount at 31 December 2007	85,620	39,053	124,673
Acquisitions	5,812	618	6,430
Additions	-	8,238	8,238
Disposals	-	(62)	(62)
Depreciation, amortisation and other movements (including exchange adjustments)	1,073	(3,164)	(2,091)
Closing net book amount at 30 June 2008	92,505	44,683	137,188

Movements in the period 1 January 2008 to 30 June 2008 are unaudited.

Goodwill with an indefinite life is not subject to amortisation, but is tested annually for impairment at the year end, 31 December, or whenever there are indications of impairment. At 30 June 2008, there were no such indications of impairment for goodwill balances with indefinite lives.

(ii) Property, plant and equipment

	£'000
Opening net book amount at 1 January 2007	15,096
Acquisitions	646
Additions	5,477
Disposals	(88)
Depreciation, amortisation and other movements (including exchange adjustments)	(4,687)
Closing net book amount at 31 December 2007	16,444
Acquisitions	10
Additions	4,585
Disposals	(153)
Depreciation, amortisation and other movements (including exchange adjustments)	(3,385)
Closing net book amount at 30 June 2008	17,501

Movements in the period 1 January 2008 to 30 June 2008 are unaudited.

 

8 Financial liabilities

	Unaudited	Audited
	30 June 2008	31 December 2007
	£'000	£'000
Current borrowings
Put options to acquire the minority interest in Enterprise Partnerships	744	-
Deferred consideration on acquisitions	674	856
Total current borrowings	1,418	856
Non-current borrowings
Deferred consideration on acquisitions	1,043	655
Total non-current borrowings	1,043	655
Non-current other financial liabilities
Put options to acquire the minority interest in Enterprise Partnerships	18,705	17,865

Movements in borrowings are analysed as follows:

		Unaudited
		£'000
Opening balance as at 1 January 2008		19,376
Acquisition of subsidiary		1,005
Repayment of interest		(129)
Payment of deferred consideration on acquisitions		(859)
Fair value adjustments and unwinding of discounts		371
Exchange adjustments		1,402
Closing balance as at 30 June 2008		21,166

  9 Provisions 

	Phoenix		Onerous lease	Restruc- turing	Operational risk	Early and part-time retirement	Long service	Other	Total
	£'000		£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2007	-		2,243	1,866	2,454	6,252	1,689	3,663	18,167
Acquired in the year	3,147		50	-	-	130	-	393	3,720
Transfer from deferred tax	-		-	-	-	-	-	1,164	1,164
Charged/(credited) to the income statement:
- provided in the year		-	2,666	-	780	1,054	-	2,018	6,518
- released in the year		-	(182)	(139)	(861)	(112)	(461)	(2,286)	(4,041)
- unwinding of discount		29	1,193	-	-	-	-	-	1,222
Used in the year		-	(1,142)	(1,577)	(505)	(2,534)	(202)	(712)	(6,672)
Exchange adjustments		180	175	16	186	473	109	299	1,438
At 31 December 2007		3,356	5,003	166	2,054	5,263	1,135	4,539	21,516
Reallocation of provisions held by recently acquired subsidiaries		446	-	-	-	(66)	332	(712)	-
Charged/(credited) to the income statement:
- provided in the period	-		50	-	140	58	128	337	713
- released in the period	-		(577)	(20)	(61)	(111)	-	(15)	(784)
- unwinding of discount	94		30	-	-	-	-	-	124
Used in the period	-		(979)	(142)	(83)	(934)	(35)	(314)	(2,487)
Exchange adjustments	259		167	1	151	361	93	(185)	847
At 30 June 2008	4,155		3,694	5	2,201	4,571	1,653	3,650	19,929

Movements in the period 1 January 2008 to 30 June 2008 are unaudited.

For a full description of the nature of each provision, please refer to page 85 of the 2007 Annual Report. 10 Movements in shareholders' equity

	Unaudited
	Share capital	Share   premium	Merger reserve	Reverse   acquisition   reserve	Other   reserves	Retained   earnings	Minority interests	Total   equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2007	221	82,589	-	-	1,251	(10,209)	11,778	85,630
Total recognised income and expense for the year	-	-	-	-	8,257	1,976	3,657	13,890
Share-based payments
- share options	-	-	-	-	-	365	-	365
- CEO's share gift	-	-	-	-	-	1,969	-	1,969
Deferred and current income tax on share options	-	-	-	-	-	5,470	-	5,470
Buy out of minority interests	-	-	-	-	-	-	(3,165)	(3,165)
Other equity movements	-	-	-	-	-	(534)	-	(534)
Shares issued
- initial public offering	1,563	73,437	-	-	-	-	-	75,000
- employee share-based payments	308	11,583	-	-	-	-	-	11,891
- exercise of warrants	5	1,546	-	-	-	-	-	1,551
- conversion of loan note	9	13,572	-	-	(249)	-	-	13,332
Transactional costs of shares issued	-	(4,279)	-	-	-	-	-	(4,279)
Dividends payable	-	-	-	-	-	-	(1,825)	(1,825)
IFRS 3 reverse acquisition conversion	8,470	(105,797)	409,672	(312,345)	-	-	-	-
At 30 June 2007	10,576	72,651	409,672	(312,345)	9,259	(963)	10,445	199,295
At 1 January 2008	10,740	73,715	409,672	(312,238)	11,032	13,661	15,336	221,918
Total recognised income and expense for the year	-	-	-	-	1,172	11,415	2,751	15,338
Premium on issue of warrant	-	-	-	-	-	124	-	124
Share-based payments								-
- share options	-	-	-	-	-	923	-	923
Deferred and current income tax on share options	-	-	-	-	-	281	-	281
Shares issued								-
- employee share-based payments	49	695	-	-	-	-	-	744
Dividends payable	-	-	-	-	-	(4,297)	(3,930)	(8,227)
At 30 June 2008	10,789	74,410	409,672	(312,238)	12,204	22,107	14,157	231,101

Other reserves relate to the revaluation reserve, which comprises the fair value adjustments and related tax on the available-for-sale assets held by the Group, the translation reserve, comprising the exchange adjustments arising from translating the results of foreign operations into the Group's presentational currency of Sterling, and amounts taken to equity in respect of both retirement benefit obligations and convertible debt.

 

11 Business combinations

 

On 1 January 2008 XUK Holdco (No. 2) Ltd, a company within the Xchanging Group, acquired 100% of the equity of Mercuris SA, a procurement services provider based in Paris. The total consideration for the acquisition was £5,085,000 with additional estimated contingent consideration to be paid in Euros of £1,005,000. Costs directly attributable to the acquisition totalled £391,000.

The acquired business contributed revenue of £1,491,000 and profit after tax of £202,000 to the Group for the period from acquisition to 30 June 2008. As the acquisition occurred on 1 January 2008, the consolidated revenue and consolidated profit of the Group for the six months ended 30 June 2008 are as if the acquisition had occurred at the start of the period.

	£'000
Costs of acquisition - initial consideration	5,085
Costs of acquisition - contingent consideration	1,005
Costs of acquisition - fees	391
Total purchase consideration	6,481
Fair value of net assets acquired (see below)	(669)
Goodwill	5,812

Goodwill represents the fair value of the assembled workforce at the time of acquisition and other potential future benefits anticipated to be derived from the integration of services offered by Mercuris with existing product and service offerings from Xchanging.

Due to the recent closure of the acquisition, the fair values of significant assets and liabilities are provisional and will be finalised by December 2008. The book and estimated fair values of these assets and liabilities as at 1 January 2008 are set out below:

	Acquiree's   carrying   amount	Provisional   fair value
	£'000	£'000
Intangible fixed assets	-	618
Property, plant and equipment	10	10
Trade and other receivables	552	552
Cash and cash equivalents	627	627
Trade and other payables	(845)	(845)
Current income tax liabilities	(90)	(90)
Deferred tax liability	-	(203)
Net assets acquired	254	669

Outflow of cash to acquire business, net of cash acquired:

	£'000
Cash consideration	5,085
Direct costs relating to acquisition	391
Cash and cash equivalents in subsidiary acquired	(627)
Cash outflow on acquisition	4,849

 

12 Related party transactions 

The following companies are considered to be related parties of the Group as they hold minority shareholdings in a number of the subsidiaries of Xchanging plc and hence can exert significant influence over those subsidiaries.

The Corporation of Lloyd's held a 25% interest in Ins-sure Holdings Limited and a 50% interest in Xchanging Claims Services Limited for the full 6 month period ended 30 June 2008. Some of the directors of Xchanging Claims Services Limited are employees of the Corporation of Lloyd's. The emoluments of these directors are borne by the Corporation of Lloyd's.

The International Underwriting Association held a 25% interest in Ins-sure Holdings Limited for the full 6 month period ended 30 June 2008.

Deutsche Bank AG held a 44% interest in Xchanging etb GmbH for the full 6 month period ended 30 June 2008. Some of the directors of Xchanging etb GmbH are employees of Deutsche Bank AG. The emoluments of these directors are borne by Deutsche Bank AG.

Aon Limited held a 50% interest in Xchanging Broking Services Limited for the full 6 month period ended 30 June 2008. Some of the directors of Xchanging Broking Services Limited are employees of Aon Limited. The emoluments of these directors are borne by Aon Limited.

Allianz Kapitalanlagegesellschaft mbH held a 49% interest in Fondsdepot Bank GmbH for the full 6 month period ended 30 June 2008.

A description of the nature of the services provided to/from these companies by/to the Group and the amount receivable/(payable) in respect of each at 30 June are set out in the table below:

	Sales/(purchases)		Receivables/(payables)
	Unaudited		Unaudited	Audited
	30 June  2008	30 June  2007	30 June  2008	31 December  2007
Services provided by/to the Group	£'000	£'000	£'000	£'000
Securities processing services	44,374	30,703	2,223	6,103
Processing, expert and data services	16,507	16,610	298	1,929
Property charges	548	-	69	277
IT costs, premises, divisional corporate charges and other services in support of operating activities	(15,244)	(11,651)	(3,254)	(3,318)
Operating systems, development, premises and other services in support of operating activities	(207)	(351)	-	(134)
Desktop, hosting, telecommunications, accommodation and processing services	(1,953)	(2,094)	(358)	(961)
Current accounts	-	-	1,410	760

By virtue of a significant shareholding, giving right of representation on the Board, General Atlantic LLC is a related party of the Group. Up to 30 April 2007, General Atlantic LLC was the holder of a £15,000,000 non-interest bearing convertible loan note issued following the acquisition of the RebusIS group, which was converted into shares prior to the initial public offering.

Transactions with Directors and key management

The compensation below relates to the Xchanging plc Directors and other key senior managers within the Group, who constitute those people with authority and responsibility for planning, directing and controlling the Group's activities.

	Unaudited
	30 June 2008	30 June 2007
Key management compensation (including Directors)	£'000	£'000
Short-term employee benefits	2,888	2,747
Post-employment benefits	34	40
Share-based payments	277	158
	3,199	2,945

During the prior year, loans were provided by the Xchanging BV Employee Benefit Trust to a number of employees including Directors and key management personnel to enable them to purchase shares in Xchanging BV (these shares were subsequently exchanged for shares in Xchanging plc). The loans are non-interest bearing and become repayable on the earlier of the cessation of employment, the transfer or disposal of shares, acceptance of another loan from the Group to refinance the shares and 31 December 2011. The Xchanging BV Employee Benefit Trust has a call option over the shares until the loans are repaid in full.

The balances due from the Directors and key management and the carrying amounts in the consolidated financial statements are:

	Unaudited		Audited
	Balance outstanding 30 June 2008	Carrying amount  30 June 2008	Balance outstanding 31 December 2007	Carrying amount 31 December 2007
	£'000	£'000	£'000	£'000
S Beard	1,590	1,580	1,590	1,531
A Browne	663	658	663	638
C Buesnel	530	526	530	510
R Houghton	663	658	663	638
M Margetts	398	395	398	383
M Pitt	424	421	424	408
D Rich-Jones	1,325	1,317	1,325	1,276
	5,593	5,555	5,593	5,384

  Statement of Directors' responsibilities

The Directors confirm that this set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

By order of the Board

D W Andrews	R A H Houghton
Chief Executive Officer	Chief Financial Officer
31 July 2008	31 July 2008

Independent review report to Xchanging plc

Introduction

We have been engaged by the Company to review the condensed consolidated interim financial information in the interim financial report for the six months ended 30 June 2008, which comprises the income statement, statement of recognised income and expense, balance sheet, cash flow statement and related notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial information.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated interim financial information included in this interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim financial reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated financial information in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior written consent.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information in the interim financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

London

31 July 2008

  Notes:

The maintenance and integrity of the Xchanging plc web site is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the web site.

Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

ENDIR PUUUCMUPRGQB