Half Year Report 2015

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30 July 2015

Xchanging plc

Results for the six months ended 30 June 2015

HY 2015 HY 2014

Net revenue1 (£m) 199.4 205.1

Adjusted operating profit2 (£m) 20.4 20.0

Adjusted operating profit margin (%) 10.2% 9.8%

Adjusted EPS – basic (pence) 2.97 2.93

Net cash3 (£m) (31.3) 107.5

Xchanging’s share of net cash (£m) (66.7) 42.7

Equity free cash flow4 (£m) (19.9) 6.1

Economic profit 5 (£m) 27.7 26.4

Highlights

• Business Process Services (‘BPS’) and Technology (93.5% net revenue): BPS performed in line with and Technology ahead of the Company’s expectations

• Procurement (6.5% net revenue): poor 1H result despite top line growth HY on HY of procurement technology platform business; £47.0 million goodwill impairment; re-organisation plan to facilitate the achievement of run-rate profitability in 2H

• Recent acquisitions performed well and integration now well underway following delay due to CMA review

• New offerings show encouraging signs • BPS legacy contract revenue reduction almost complete; strong underlying performance • Xuber pipeline remains strong; a number of smaller contract wins in 1H as material contracts

move towards closure in 2H • Ken Lever, CEO, retires at end of 2015; search for successor underway; separate

announcement made today Ken Lever, Chief Executive, commented:

“The Board is pleased with the performance of the majority of the Group during the first half of the year. BPS performed in line with our expectations; we delivered good underlying revenue growth, are working closely with Lloyd’s to support their Market Modernisation programme, have continued to progress our technology investment programme alongside our partners and the legacy contract revenue reduction is almost complete.

Technology performed ahead of our plans; we continue to see growth in our Application Services business, our recent acquisitions are contributing and following a delay due to CMA review, we are now focussed on achieving the anticipated synergy, product offering and new market opportunity benefits. We have made great progress on the strategic transformation of Xchanging around technology and technology-enabled services.

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.

There are a number of variables to 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.”

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Notes

1. Net revenue is total revenue less supplier costs on procurement contracts (where the Group acts as principal) that are incurred by the Group and recharged to the customer.

2. Adjusted operating profit excludes exceptional items (HY 2015: £49.5 million costs, HY 2014: £8.5 million income), acquisition costs (HY 2015: £8.4 million, HY 2014: £2.5 million) and amortisation of intangible assets previously unrecognised by acquired entities (HY 2015: £3.6 million, HY 2014: £1.8 million).

3. Net cash is calculated as cash and cash equivalents (HY 2015: £114.0 million, HY 2014: £118.3 million) less bank loans and revolving credit facilities (HY 2015: £145.0 million, HY 2014: £10.0 million), finance lease liabilities (HY 2015: £0.3 million, HY 2014: £0.8 million) and loans from related parties (HY 2015: £nil, HY 2014: £nil).

4. Equity free cash flow is calculated as operating cash flow (as defined above) less cash tax (HY 2015: £2.1 million, HY 2014: £7.9 million) and net interest paid including dividends received (HY 2015: £1.4 million, HY 2014: £1.5 million).

5. Economic profit is adjusted operating profit less a tax charge at the Group’s effective tax rate for a rolling twelve month period, less a charge for invested capital. The charge for invested capital is calculated as the Group’s invested capital (as defined above) multiplied by the Group’s weighted average cost of capital, being 10%.

Enquiries

Xchanging plc Tel: +44 (0) 203 604 6999 David Bauernfeind, Chief Financial Officer Alexandra Hockenhull, Director of Corporate Communications and Investor Relations Maitland Tel: +44 (0) 207 379 5151 Emma Burdett Robbie Hynes A presentation for investors and analysts will be held at The Walbrook Building, 25 Walbrook, London, EC4N 8AQ at 9:00am on 30 July 2015. For those unable to attend, there will be a live webcast of the presentation available on the company website www.xchanging.com. For audio only and questions there is a dial in number: +44 (0) 1452 555566, conference ID number: 94656587

About Xchanging

www.xchanging.com

@XchangingGroup

LinkedIn/company/xchanging

Cautionary Statement: This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. In particular, any statements regarding Xchanging's strategy, dividend policy and other future events or prospects are forward-looking statements. Undue reliance should not be placed on any such statements because they speak only as at the date of this announcement and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Xchanging's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

These forward-looking statements are not guarantees of future performance and there are a number of factors (many of which are outside of Xchanging's control) which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among these factors are: increased competition, the loss of or damage to one or more key customer relationships, changes to customer ordering patterns, delays in obtaining customer approval or price level changes, the failure of

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one or more key suppliers, the outcome of business or industry restructuring, the outcome of any litigation, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in raw material or energy market prices, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, or the key timing and success of future acquisition opportunities or major investment projects.

Save for those forward-looking statements required by the Listing Rules, the Disclosure and Transparency Rules and/or the Prospectus Rules, Xchanging undertakes no obligation to update these forward-looking statements, and will not publicly release any revisions it may make to these forward-looking statements that may result from events or circumstances arising after the date of this announcement. Xchanging therefore will comply with its obligations to publish updated information as required by law or by any regulatory authority but assumes no further obligation to publish any additional information.

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RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2015

OVERVIEW During the first half of the year our Business Process Services (‘BPS’) and Technology businesses (93.5% of 1H net revenue) performed well, in line with or ahead of our expectations. Our Procurement business (6.5% of 1H net revenue) however has delivered a very poor and disappointing performance which, combined with currency factors in our BPS business, has impacted our overall result for the half year. Sector Review BPS (67.2% of 1H net revenue) Business Process Services has performed well. The transition out of legacy and lower margin business in our Broking and Claims businesses, a process that is now almost complete, reduced net revenue by £9.1 million. The weakening of the Euro and Australian dollar adversely impacted net revenue by £4.6 million. Despite these challenges, net revenue for this business amounted to £134.0 million (HY 2014: £142.1 million). Adjusted operating profit was £28.4 million (HY 2014: £26.1 million), representing an adjusted operating profit margin of 21.2% (HY 2014: 18.4%) largely reflecting the benefit of cost reduction initiatives taken last year. BPS has continued to pursue the technology-enabled processing strategy and we are seeing encouraging signs from recent new offerings. Robotic Process Automation has been embedded in our operations and is now being taken to our customers as part of our enhanced service offering. We have now combined our original Binder 360 offering with BinderCloud from the Total Objects acquisition at the end of 2014. The new offering, BinderCloud 360, sits at the heart of our new menu of Delegated Underwriting Services. Launched in 2014, the service has been well received in the market, winning a number of initial broker and carrier customers. In Australia, the broker technology platform X-alt, in which we have a 90% interest, launched in April 2015. It is building a strong pipeline of new business, winning 6 new contracts in the first half of this year. Following a successful Netsett pilot in an in-house corporate setting, the current pilot with members of the Ruschlikon group of broker and insurance companies is going well. Netsett, with the continued support of our partner Deutsche Bank, is gaining traction and is anticipated to generate its first revenues, albeit small, in the second half of the year. We are working closely with Lloyd’s of London to provide support for their Central Services Refresh Programme to achieve market modernisation. Within this, our current programme of new technology introductions, due to continue into 2016, is being well received. Our investment in the current year in developing this technology is key to ensuring that we remain at the centre of the London market. The exit from the WorkCover workers’ compensation contract with the State of New South Wales in Australia is now substantially complete. In Financial Services, our investment in technology and restructuring is well advanced. The benefits are starting to show, although the reported numbers are being adversely impacted by the translation impact of the weak Euro against Sterling.

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Technology (26.3% of 1H net revenue) Technology has also performed well, despite the comparative effect of the exit from the London Metal Exchange (‘LME’) contract in May 2014, and the impact on adjusted operating profit of a higher amortisation charge of £5.1 million (HY 2014: £3.7 million). Net revenue was £52.4 million (HY 2014: £47.1 million). Adjusted operating profit was £4.1 million (HY 2014: £2.7 million), representing an adjusted operating profit margin of 7.8% (HY 2014: 5.7%). The acquisition of the European insurance software businesses from Agencyport Software, announced on 4 July 2014, was finally cleared by the Competition and Markets Authority on 29 April 2015. The process not only delayed our ability to integrate the business, but also put a material burden on management resource as well as incurring costs. However, this business meantime continued to perform in line with our expectations and the acquisition business plan, on a standalone basis. Following clearance, we are now integrating the acquisition into our Xuber insurance software business, so we can enjoy the full synergy, product offering and new market opportunity benefits envisaged at the time of the acquisition. In the second half we expect to start to realise the benefit of integration savings, which are anticipated to reach significant levels in 2016. Similarly, the Total Objects acquisition, completed in December 2014, is contributing well in its first full half year and has been successfully building its customer base. Our Xuber insurance software business continues to strengthen its profile in the market. Some key contracts were won in the first half, including with Ariel Re, with certain more material contracts in the pipeline progressing towards closure during the second half. A number of implementations including Everest Re are at an advanced stage of completion. We remain confident about the potential of the Insurance Software business and the strength of the pipeline, although the length of the sales cycle, particularly for large policy administration replacement projects, means the timing of contract wins is not easy to predict. In our Application Services business, the strong growth momentum continues with good flows of new business across the entire sector, and important new signings made in our Education business and in the Asian marketplace. We have won a significant number of new clients and substantially increased our portfolio of work with our existing customers. Given the materiality of contracts in the Xuber pipeline, some of which are based on initial licence revenues in-year, the timing of wins will be an important factor in Xchanging’s financial performance for the year as a whole. Procurement (6.5% of 1H net revenue) As foreshadowed in our First Quarter 2015 Update published in April, Procurement has had a difficult first half year. A weak performance in the traditional outsourcing business has combined with underperformance in one of the new Tail-end Spend Management contracts, overshadowing the HY on HY revenue growth of the acquired technology businesses to deliver an overall unsatisfactory result. Net revenue was £13.0 million (HY 2014: £15.9 million), and the adjusted operating loss was £6.8 million (HY 2014: £1.7 million loss). This was after allocating central overheads of £1.8 million (HY 2014: £1.9 million). This has resulted in an impairment of the Procurement sector goodwill of £47.0 million

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and an onerous contract and related assets exceptional charge of £4.1 million. In the 2H we expect a further exceptional charge for restructuring of c.£3 million. Our Procurement business is comprised of three principal operations: our technology platform offerings comprising the MM4 and Spikes Cavell (acquired in February 2015) spend analytics businesses; our traditional outsourcing contracts; and our Tail-end Spend Management contracts. Technology platform offerings: revenues from our technology platform offerings, Software-as-a-Service (‘SaaS’) and Procurement-as-a-Service (‘PaaS’) based on the MM4 technology, continue to grow from a small base. Spikes Cavell, acquired in February 2015 to build out the range of offerings, is performing to plan and has secured some key contract renewals. The technology business has grown revenues with net additions to the customer base, mainly in the attractive US market. Traditional outsourcing: in our First Quarter 2015 Update we noted that the performance of the Procurement business overall was being adversely impacted by our traditional outsourcing business where cost base reduction has been lagging the rate of loss of traditional revenues, impacted by contract exits and contract renegotiations. These circumstances have persisted throughout the first half. Tail-end Spend Management: in the First Quarter 2015 Update we also noted that the first half of 2015 would bear the costs of the implementation process for the new, Tail-end Spend Management business won in the second half of 2014, with benefits expected to start showing in the second half of the year. Whilst the costs of implementation have been borne in the first half as expected, the associated stream of new revenue has been slow to gain momentum and is significantly lagging our expectations. The future of this contract is now under active review and it has been accounted for as an onerous contract in our half year accounts. The combined effect of the traditional outsourcing and Tail-end Spend Management businesses has significantly impacted the Procurement business result overall. In our First Quarter 2015 Update we commented that a recovery plan was underway to address the challenges facing the Procurement business, and in the first half, significant work has been undertaken to manage the cost base. However, despite revenue growth in the, as yet small, technology platform business, anticipated new contracts in the second quarter did not materialise, resulting in a deterioration of the financial year forecast for Procurement overall. We have undertaken a review of options for how best to manage this business profitably. Our decision is to align the principal parts with other segments of the Group. This is designed to facilitate the potential for a material reduction in the cost base of the business across the second half of the year and to enable us to manage the business profitably. As firm proposals for cost reductions are formulated they will be subject to local legislation on employee consultation in all potentially affected countries. The technology platform-based SaaS/PaaS business will be included within our Technology business and come under that sector’s leadership. We will continue to go to market actively and support these offerings, as part of our expanding technology range. Our outsourcing contracts, being in the nature of business process outsourcing business, will now be operated and delivered by our BPS business, and come under that sector’s leadership. We anticipate being able to utilise our existing BPS infrastructure to achieve significant cost reductions during the second half of 2015. The procurement outsourcing business will continue with the existing customers and will be an offering as an upsell to the technology customer relationships. The capability to deliver the contracts will be retained within BPS and we will also further examine options for improving the efficiency of this business through the greater use of robotics and offshoring.

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One of the Tail-end Spend Management contracts won in 2014 has proved disappointing, incurring unacceptable losses to date. We are actively reviewing the contract with the customer to establish a resolution. In the meantime, the contract will be managed and delivered by BPS, alongside the traditional outsourcing contracts. To help plan to achieve maximum benefit from the strategic realignment in the second half of the year, we have enlisted external support. We will continue to report financial information for the Procurement businesses in the near term but ultimately the technology and business processing components of Procurement will be reported within Technology and BPS. STRATEGIC REVIEW Our strategy remains to put technology at our core. We continue to use technology, innovation, and market and customer insight to develop and deliver differentiated offerings which address the processing challenges of our customers and add value to their businesses. Business Process Services In addition to new offerings referred to in the sector review above, we have successfully launched our globalREmarket broking e-placing platform; Xcelsia, our claims processing service for North America; our Data Capture Service for the London market; and XOOM, a mobile app for use in the Australian workers’ compensation market. This theme was examined and illustrated in our 17 June 2015 Investor Seminar (and the associated materials are available on our website). Technology In Technology, our Insurance Software business continues to see a strong pipeline, and within this business, the two acquisitions made in 2014, although initially hindered by the Competition and Markets Authority review process, are now cleared, being integrated according to their respective plans, and already delivering benefits in line with those plans. We will continue to drive our newly enlarged Insurance Software business, especially in the global market, and to foster the continuing growth of our Application Services business. Following the significant investment made in 2014 in both acquisitions and organic development in Technology and BPS, Xchanging’s businesses are well positioned in our chosen markets, and showing encouraging growth. BOARD COMPOSITION The service agreement of one of our Non-executive Directors, Michel Paulin, expires on 31 December 2015. On 30 July 2015 Michel confirmed that he will not seek an extension to his service contract after the expiry date. Michel joined the board in January 2010 and is a valuable contributor to the Company’s leadership. However, having considered its size and composition, the Board has concluded that no replacement appointment is warranted when Michel steps down at the end of the year. In a separate announcement today we have reported that Ken Lever will be retiring from his role as CEO of Xchanging at the end of 2015. Ken joined Xchanging in 2010 and has played a significant role in the transformation of Xchanging over the last four years from a traditional outsourcing business to one built on technology and technology-enabled services. The search for his successor is underway.

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OUTLOOK There is no doubt that the significant part of Xchanging’s business is benefitting from the actions and investments of recent years and growing robustly in attractive markets. The significant and unwelcome underperformance of Procurement, which accounts for a small part of our overall business, should not obscure the strong growth and future potential of the Group, nor the fact of the significant transformation the Company has undergone over the last four years. Xchanging now has a leading insurance software business and an enviable position in the insurance market; a stable capital markets business; and a growing Applications Services business. As described above, our BPS and Technology businesses have performed strongly in the first half of the year and the outlook is for this robust performance to continue in the second half of the year, although this is dependent on the timing of material Xuber contracts, and currency effects. In Procurement, we have a clear strategic objective to address the profitability issues, in the second half of the year. Our success in achieving this will also affect our full year financial performance. Our efforts in the second half will be focussed on converting our established and growing pipeline. It will also be focused on achieving a satisfactory result from the reorganisation of the way in which we manage and operate our procurement business within BPS and Technology by aligning our outsourcing contracts with our BPS business and using our Technology business to accelerate our procurement technology offerings. The outlook for the full year is for a trading performance in line with last year and a return to growth in the full year 2016.

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OPERATING AND FINANCE REVIEW

Group financial indicators

HY 2015 HY 2014 %

Revenue (£m) 240.2 282.1 (14.9%)

Net revenue1 (£m) 199.4 205.1 (2.8%)

Adjusted operating profit2 (£m) 20.4 20.0 2.0%

Adjusted operating profit margin (%) 10.2% 9.8% 100bps

Statutory operating profit (£m) (41.1) 24.2 (269.8%)

Adjusted profit before tax (£m) 17.1 17.6 (2.8%)

Adjusted EPS – basic (pence) 2.97 2.93 1.4%

Statutory EPS – basic (pence) (21.99) 4.54 (584.4%)

Operating cash flow3 (£m) (16.4) 15.5 (205.8%)

Adjusted cash conversion4 (%) (35.3%) 43.5% (7880bps)

Net cash5 (£m) (31.3) 107.5 (129.1%)

Xchanging’s share of net cash (£m) (66.7) 42.7 (256.2%)

Equity free cash flow6 (£m) (19.9) 6.1 (426.2%)

Return on invested capital7 (%) 23.6% 30.5% (690bps)

Economic profit 8 (£m) 27.7 26.4 4.9%

Notes

1. Net revenue is total revenue less supplier costs on procurement contracts (where the Group acts as principal) that are incurred by the Group and recharged to the customer.

2. Adjusted operating profit excludes exceptional items (HY 2015: £49.5 million costs, HY 2014: £8.5 million income), acquisition costs (HY 2015: £8.4 million, HY 2014: £2.5 million) and amortisation of intangible assets previously unrecognised by acquired entities (HY 2015: £3.6 million, HY 2014: £1.8 million).

3. Operating cash flow is calculated as cash generated from operations less net capital expenditure (including pre-contract costs HY 2015: £0.3 million, HY 2014: £0.3 million) and dividends to non-controlling interests (HY 2015: £12.5 million, HY 2014: £11.2 million).

4. Adjusted cash conversion is calculated as operating cash flow, after adding back the cash impact of exceptional items (HY 2015: £4.6 million inflow, HY 2014: £7.5 million inflow), acquisition related expenses (HY 2015: £2.1, HY 2014: £nil) and the (decrease) / increase in customer cash accounts held by Fondsdepot Bank (HY 2015: £2.5 million, HY 2014: (£0.7 million)) divided by adjusted operating profit.

5. Net cash is calculated as cash and cash equivalents (HY 2015: £114.0 million, HY 2014: £118.3 million) less bank loans and revolving credit facilities (HY 2015: £145.0 million, HY 2014: £10.0 million), finance lease liabilities (HY 2015: £0.3 million, HY 2014: £0.8 million) and loans from related parties (HY 2015: £nil million, HY 2014: £nil million).

6. Equity free cash flow is calculated as operating cash flow (as defined above) less cash tax (HY 2015: £2.1 million, HY 2014: £7.9 million) and net interest paid including dividends received (HY 2015: £1.4 million, HY 2014: £1.5 million).

7. Return on invested capital is adjusted operating profit less a tax charge at the Group’s effective tax rate (HY 2015: 24.2%, HY 2014: 22.7%) for a rolling twelve month period, divided by invested capital at the period end date. Invested capital is calculated as the Group’s net assets (HY 2015: £172.4 million, HY 2014: £235.9 million), less net cash noted in the table above.

8. Economic profit is adjusted operating profit less a tax charge at the Group’s effective tax rate for a rolling twelve month period, less a charge for invested capital. The charge for invested capital is calculated as the Group’s invested capital (as defined above) multiplied by the Group’s weighted average cost of capital, being 10%.

Financial Highlights

• AOP improved to £20.4 million and margins to 10.2% (from £20.0 million and 9.8% respectively)

• BPS margins improved to 21.2% from 18.4% • Impairment of the Procurement sector goodwill of £47.0 million and onerous contract and

related assets exceptional charge of £4.1 million • Acquisition of Spikes Cavell in February 2015; clearance obtained from the CMA in April

2015 for the businesses acquired from Agencyport • Technology AOP improvement to £4.1 million (from £2.7 million), largely from acquisitions

despite reduction from LME

.

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Income Statement

Net revenue

Net revenue for the six months ended 30 June 2015 was £199.4 million (30 June 2014: £205.1 million). Net revenue was adversely effected by the run off of the legacy and lower margin business in our Broking and Claims businesses (‘CAF reduction’) and the London Metal Exchange (‘LME’) exit by £19.4 million.

Adjusted operating profit

Adjusted operating profit (‘AOP’) for the six months ended 30 June 2015 was £20.4 million (30 June 2014: £20.0 million). AOP was negatively impacted by the CAF reduction, LME reduction, and the results of the Procurement sector. This was somewhat mitigated by cost reductions of £6.2 million.

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Margins

Adjusted operating profit margin (based on net revenue) improved to 10.2% (HY 2014: 9.8%). Corporate

Corporate costs for the six months ended 30 June 2015 totalled £5.3 million (HY 2014: £7.1 million).

Taxation

The Group’s effective tax rate on adjusted profit before tax was in line with our expectations at 24.2% (HY 2014: 22.7%). The rate was lower in H1 2014 due to the recognition of the tax benefit of historic losses. The cash tax rate on adjusted profit before tax was 24.7% (HY 2014: 24.4%).

Earnings per share

Adjusted basic earnings per share were 2.97p (HY 2014: 2.93p).

Sector performance

The table below shows net revenue and adjusted operating profit movements, by sector, after adjusting for the effects of foreign exchange, acquisitions (the businesses acquired from Agencyport, Total Objects and Spikes Cavell).

H1 2014 Exchange

rate effect

Impact of acquisitions

Prior Year Like

for Like Underlying

change HY 2015

SECTORS £m £m £m £m £m % £m

Group

Net revenue 205.1 (3.8) 14.6 215.9 (16.5) (7.6) 199.4

Adjusted operating profit 20.0 (1.4) 2.9 21.5 (1.1) (5.1) 20.4

Business Processing Services

Net revenue 142.1 (4.6) - 137.5 (3.5) (2.5) 134.0

Adjusted operating profit 26.1 (1.0) - 25.1 3.3 13.1 28.4

Technology

Net revenue 47.1 1.0 14.0 62.1 (9.7) (15.6) 52.4

Adjusted operating profit 2.7 (0.3) 3.0 5.4 (1.3) (24.1) 4.1

Procurement

Net revenue 15.9 (0.2) 0.6 16.3 (3.3) (20.2) 13.0

Adjusted operating (loss)/profit (1.7) 0.1 (0.1) (1.7) (5.1) (300.0) (6.8)

Corporate

Adjusted operating (loss)/profit (7.1) (0.2) - (7.3) 2.0 (27.4) (5.3)

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Cash flow

HY 2015 HY 2014

£m £m

Statutory operating (loss)/profit (41.1) 24.2

Depreciation and amortisation (including customer contracts) 15.9 10.7

Share based payments 0.7 1.7

Other non-cash items 47.5 -

Statutory operating profit less non-cash items 23.0 36.6

Working capital outflow at exit of BAES UK contract (14.1) -

Movement in customer cash 2.5 -

Movement in payables and receivables 6.3 17.7

Movement in pensions (2.8) (1.3)

Movement in provisions (2.8) (2.4)

Cash generated from operations 12.1 50.6

Dividends to non-controlling interests (12.5) (11.2)

Net capital expenditure (16.0) (23.9)

Operating cash flow from operations (16.4) 15.5

Interest (1.4) (1.5)

Tax (2.1) (7.9)

Equity free cash flow from operations (19.9) 6.1

Acquisitions and disposals (including put options and deferred consideration) (11.4) (7.2)

Dividends paid to shareholders (6.8) (6.1)

Net other cash flows - (2.8)

Foreign currency movements (6.9) (2.6)

Movements in net cash in the period (45.0) (12.6)

Cash generated from operations decreased from £50.6 million in the first half of 2014 to £12.1 million in the first half of 2015. The net cash outflow for the period was £45.0 million.

Significant events in the period

Exceptional Items

• Impairment of the Procurement sector goodwill and other assets of £47.0 million • An onerous contract provision of £2.8 million and an impairment of related contract assets of

£1.3 million • The London Processing Centre Ltd Retirement & Death Benefits Scheme (the “LPC

Scheme”) was closed to future accrual, effective from 28 February 2015, resulting in curtailment income of £1.6 million.

Acquisitions and investments

On 25 February 2015 the Group acquired Spikes Cavell Analytic Limited with an initial payment of £3.8 million and up to £3.1 million in deferred contingent consideration. In the period, £2.3 million was paid in deferred consideration for AR Enterprise, £4.5 million for MM4 and £0.8 million for Total Objects.

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The amount spent on acquisitions in the period and the remaining expected amounts to be paid are as follows:

Date of acquisition

Payments in H1 2015 (net of cash acquired)

Outstanding deferred

consideration

Outstanding contingent consideration

2016 H2 2015 2016 2017 £m £m £m £m £m AR Enterprise Oct-12 2.3 - 0.2 - - MM4 Sep-13 4.5 - 0.9 1.6 - Total Objects Dec-14 0.8 0.8 - 3.0 5.0 Spikes Cavell Feb-15 3.8 - - 3.1 - Total 11.4 0.8 1.1 7.7 5.0

Capital expenditure

The Group incurred capital expenditure of £15.4 million in the period (HY 2014: £23.9 million), with £16.0 million cash payments during the period. Our organic investment programme can be split into three areas:

• Expenditure on product development was £5.8 million. This included accelerating development plans for Xuber (investing £2.7 million) to enhance existing module, as well as creating a US admitted module. In Germany there was a significant investment (£1.8 million) in product development, automation and process efficiency for our investment accounts administration business.

• 2014 was a pivotal year for our internal change program with an investment of £13.8 million. This HY 2015 we see the continuation of investment in internal change program, which is due to be largely complete by the end of the year, with £5.1 million spent in the half year ended 30 June 2015.

• Expenditure on refresh was £4.5 million. Within BPS an investment of £1.3 million was made for Central Services Refresh Programme and £2.9 million on IMR.

Net cash

As at 30 June

2015

As at 31 December

2014

As at 30 June

2014 £m £m £m

Cash Xchanging* 96.8 92.8 39.8 Xchanging Solutions 7.1 7.8 5.6 Enterprise Partnerships 10.1 28.6 72.9 114.0 129.2 118.3 Debt Drawn revolving debt facility (145.0) (115.0) (10.0) Finance leases (0.3) (0.5) (0.8) (145.3) (115.5) (10.8) Net cash (31.3) 13.7 107.5

*Xchanging cash includes £33.6 million (HY 2014: £34.5 million) of customer cash deposits held in Fondespot Bank

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Xchanging’s share of net cash

Xchanging’s share of balance sheet net cash excludes customer cash held in Fondespot Bank and the non-controlling interest share of cash held in Xchanging Solutions and Enterprise Partnerships.

As at 30 June

2015

As at 31 December

2014

As at 30 June

2014 £m £m £m

Xchanging’s share of cash Xchanging wholly owned entities 63.2 58.3 39.8 Xchanging Solutions 5.3 5.9 4.2 Enterprise Partnerships 10.1 19.7 9.5 Bank debt and financial leases (145.3) (115.5) (10.8) Xchanging’s share of net cash (66.7) (31.6) 42.7

Borrowing facilities

On 21 April 2015 the Group’s committed debt facility was increased by £10.0 million from £165.0 million to £175.0 million. As at 30 June 2015, the Group had £29.2 million (HY 2014: £99.0 million) of headroom under its committed debt facilities.

Borrowing covenants

The Group is subject to covenants, representations and warranties commonly associated with corporate bank debt for its term loan and revolving credit facilities. As at 30 June 2015, the Group was compliant with both of its financial covenants:

• The ratio of consolidated borrowings to Xchanging’s share of consolidated profit before depreciation and amortisation (pre-exceptional items) must not exceed 2.5 times. As at 30 June 2015, the ratio was 2.0 times; and

• The ratio of Xchanging’s share of consolidated profit before depreciation and amortisation (pre-exceptional items) to net consolidated finance charges must not be less than 5.0 times. As at 30 June 2015, the ratio was 17.4 times.

Dividends

The 2014 full year dividend of 2.75 pence per ordinary share was paid on 22 May 2015. In line with previous years the Board is not recommending the payment of an interim dividend.

15

Group risk factors

In the period since the 2014 Annual Report there have been changes to the profile of some of the Principal risks, as matters referred to in the supporting commentary have materialised and changed. Overall no additional risks are being added and none have been removed.

• Risk 1 – Failure to secure new business from both new and existing customers The full year financial forecast for the Procurement business, which underpinned the 2014 year end goodwill impairment calculations deteriorated significantly during the first half of the year following the failure to return the Procurement business to profitability (£47.0 million, note 7). Goodwill impairment as referred to in the commentary supporting this risk, has materialised.

• Risk 6 - Failure to execute integration of acquisitions (*) CMA clearance, as referenced in the commentary supporting this risk, means that clearance is no longer a factor delaying the delivery of revenue and cost synergies. However the risk of successfully executing the integration remains.

• Risk 7 – Our reputation and ultimately our profitability, is dependent upon the high level of service we deliver in implementing existing and new contracts for our customers. The decision to re-align the principal parts of the Procurement business with other segments of the group now impacts the profile of this risk, as we execute the realignment and the intended reduction in the overhead cost of the business, whilst ensuring that service levels are maintained.

Strategic risks

1. Failure to secure new business from both new and existing customers (*) 2. Failure to utilise and exploit technology-enablement for growth 3. Failure to successfully transact appropriate acquisitions and disposals.

Commercial risks

4. The development of, and increased competition within, the London insurance market (*) 5. We have a concentration of material contracts with customers in key markets, which may

have a significant impact on the Group’s performance.

Operational risks

6. Failure to execute integration of acquisitions (*) 7. Our reputation and ultimately our profitability, is dependent upon the high level of service

we deliver in implementing existing and new contracts for our customers.

Financial risks

8. The Group’s financial results may be subject to volatility arising from movements in interest and foreign exchange rates, pension asset and liability valuations, and changes in taxation legislation, policy or tax rates

9. The capital structure of the Group includes debt funding resulting in a requirement to manage cash across the legal entities within the Group.

(*) Identified as a key risk

The Principal risks and uncertainties section of the 2014 annual report, can be found on pages 24 to 27, a copy of which can be found on our website www.xchanging.com.

16

Consolidated income statement for six months ended 30 June 2015

Unaudited

Six months ended 30 June 2015 Six months ended 30 June 2014

Notes Adjusted

£m

Adjustments1

£m

Total

£m

Adjusted

£m

Adjustments1

£m

Total £m

Revenue 240.2 - 240.2 282.1 - 282.1

Net revenue2 199.4 - 199.4 205.1 - 205.1

Gross profit/(loss) 27.6 (13.8) 13.8 26.1 (5.8) 20.3

Administrative expenses (7.2) (49.5) (56.7) (6.1) (1.2) (7.3)

Other income - 1.8 1.8 - 11.2 11.2

Operating profit/(loss) 20.4 (61.5) (41.1) 20.0 4.2 24.2

Finance costs (3.9) - (3.9) (2.6) - (2.6)

Finance income 0.5 - 0.5 - 0.4 0.4 Share of profit from joint ventures 0.1 - 0.1 0.2 - 0.2

Profit/(loss) before taxation 17.1 (61.5) (44.4) 17.6 4.6 22.2

Taxation 10 (4.1) 1.0 (3.1) (4.0) (1.1) (5.1) Profit/(loss) for the period 13.0 (60.5) (47.5) 13.6 3.5 17.1

Attributable to:

Owners of the parent 7.3

(61.2)

(53.9)

7.1

3.9

11.0

Non-controlling interests 5.7 0.7 6.4

6.5

(0.4)

6.1

13.0

(60.5)

(47.5) 13.6

3.5

17.1

Earnings per share (expressed in pence per share) Basic earnings per share 2.97 (24.96) (21.99) 2.93 1.61 4.54

Diluted earnings per share 2.96 (24.91) (21.95) 2.83 1.56 4.39

Notes 1 to 23 form an integral part of these condensed consolidated interim financial statements.

1Adjustments in 2014 and 2015 include exceptional items (Note 7), amortisation of intangible assets previously unrecognised by an acquired entity, acquisition related costs and imputed interest on put options. 2 Net revenue is total revenue less supplier costs on procurement contracts (where the Group acts as principal) that are incurred by the Group and recharged to the customer.

17

Consolidated statement of comprehensive income for the six months ended 30 June 2015

Unaudited

Six months ended 30

June 2015

Six months ended 30

June 2014 £m £m

(Loss)/profit for the period (47.5) 17.1

Items that may be reclassified to profit or loss Revaluation of available-for-sale financial assets 0.1 (0.3)

Fair value movement on hedging instruments qualifying for hedge accounting (1.4) (0.2)

Fair value movements on hedging instruments recycled to the income statement upon de-designation

0.7 (0.5)

Currency translation differences (7.7) (2.5)

Tax in respect of items that may be reclassified 0.1 -

Total items that may be reclassified to profit or loss (8.2) (3.5)

Items that will not be reclassified to profit or loss

Actuarial gains/(losses) arising from defined benefit pension schemes 8.2 (4.6)

Tax in respect of items that will not be reclassified (1.6) 0.9

Total items that will not be reclassified to profit or loss 6.6 (3.7)

Other comprehensive loss for the period (1.6) (7.2)

Total comprehensive income for the period (49.1) 9.9

Attributable to:

Owners of the parent (55.9) 4.2

Non-controlling interests 6.8 5.7

(49.1) 9.9

Notes 1 to 23 form an integral part of these condensed consolidated interim financial statements.

18

Consolidated cash flow statement for the six months ended 30 June 2015

Unaudited

Six months ended 30 June

2015

Six months ended 30 June

2014 Notes £m £m Cash flows from operating activities

Cash generated from operations 9 12.1 50.6

Income tax paid (2.1) (7.9)

Net cash generated from operating activities 10.0 42.7

Cash flows from investing activities

Acquisition cost of subsidiaries (including deferred consideration) (11.4) (2.6)

Exercise of put option - (4.0)

Investment in associate - (0.6)

Purchase of property, plant and equipment (1.5) (7.1)

Purchase of intangible assets (14.2) (16.5)

Pre-contract expenditure (0.3) (0.3)

Interest received 0.5 0.4

Net cash used in investing activities (26.9) (30.7) Cash flows from financing activities Proceeds from issue of shares 0.2 1.5 Purchase of own shares (0.1) (2.2)

Borrowings drawn down 29.8 9.6 Loan fees on debt facility (0.1) (2.1) Interest paid (1.9) (1.9) Dividends paid to equity shareholders (6.8) (6.1)

Dividends paid to non-controlling interests (12.5) (11.2)

Net cash generated/(used) in financing activities 8.6 (12.4)

Net decrease in cash and cash equivalents (8.3) (0.4)

Cash and cash equivalents at 1 January 129.2 121.3

Effects of exchange adjustments (6.9) (2.6)

Cash and cash equivalents at 30 June 16 114.0 118.3

Notes 1 to 23 form an integral part of these condensed consolidated interim financial statements.

19

Consolidated balance sheet as at 30 June 2015

Unaudited Audited Notes 30 June 2015

£m 31 December 2014

£m

Assets Non-current assets Goodwill 13 161.3 209.4 Other intangible assets 14 127.5 123.0 Property, plant and equipment 15 16.0 17.9 Investment in joint venture and associates 1.4 1.4 Available-for-sale financial assets 2.7 2.6 Trade and other receivables 5.9 6.2 Deferred income tax assets 36.5 35.9 Total non-current assets 351.3 396.4 Current assets Current income tax receivable 1.2 1.2 Borrowings 1.9 0.6 Other financial assets - 0.5 Trade and other receivables 104.5 116.6 Cash and cash equivalents 16 114.0 129.2 Total current assets 221.6 248.1 Total assets 572.9 644.5 Liabilities

Current liabilities Trade and other payables (115.2) (141.0) Current income tax liabilities (6.7) (4.3) Borrowings 17 (0.2) (0.2) Customer accounts (33.6) (34.5) Other financial liabilities 18 (4.6) (3.2) Provisions 20 (15.2) (18.0) Total current liabilities (175.5) (201.2) Non-current liabilities Trade and other payables (3.9) (2.0) Borrowings 17 (145.0) (113.8) Other financial liabilities 18 - (0.7) Deferred income tax liabilities (18.6) (17.5) Retirement benefit obligations 22 (56.5) (67.4) Provisions 20 (1.0) (1.9) Total non-current liabilities (225.0) (203.3) Total liabilities (400.5) (404.5) Net assets 172.4 240.0

Ordinary shares 12 12.4 12.2 Share premium 12 111.0 111.0 Other reserves 47.6 49.6 Retained earnings (16.3) 43.8 Equity attributable to the owners of the parent 154.7 216.6 Non-controlling interest in equity 17.7 23.4 Total equity 172.4 240.0

Notes 1 to 23 form an integral part of these condensed consolidated interim financial statements.

20

Consolidated statement of changes in equity for the six months ended 30 June 2015

Share capital

Share premium

Other

reserves Retained earnings

Total Non-controlling

interests

Total equity

£m £m £m £m £m £m £m

At 1 January 2014 12.1 110.5 67.7 29.2 219.5 22.6 242.1

Profit for the period - - - 11.0 11.0 6.1 17.1

Other comprehensive income - - (6.8) - (6.8) (0.4) (7.2)

Total comprehensive income for the period

- - (6.8) 11.0 4.2 5.7 9.9

Share-based payments - - - 1.7 1.7 - 1.7

Shares issued in respect of employee services

0.1 1.4 - - 1.5 - 1.5

Purchase of own shares - - - (2.2) (2.2) - (2.2)

Transaction with non-controlling interest

- - (3.5) 3.8 0.3 (0.1) 0.2

Dividends paid - - - (6.1) (6.1) (11.2) (17.3)

At 30 June 2014 (unaudited) 12.2 111.9 57.4 37.4 218.9 17.0 235.9

At 1 January 2015 12.2 111.0 49.6 43.8 216.6 23.4 240.0

Profit for the period - - - (53.9) (53.9) 6.4 (47.5)

Other comprehensive income - - (2.0) - (2.0) 0.4 (1.6)

Total comprehensive income for the period

- - (2.0) (53.9) (55.9) 6.8 (49.1)

Share-based payments - - - 0.7 0.7 - 0.7

Shares issued in respect of employee services

0.2 - - - 0.2 - 0.2

Purchase of own shares - - - (0.1) (0.1) - (0.1)

Dividends paid - - - (6.8) (6.8) (12.5) (19.3)

At 30 June 2015 (unaudited) 12.4 111.0 47.6 (16.3) 154.7 17.7 172.4

For a description of the nature and purpose of each reserve within shareholders’ equity refer to note 32, on pages 134-136, in the 2014 Annual Report.

Movements in the period 1 January 2014 to 30 June 2014 and the period 1 January 2015 to 30 June 2015 are unaudited.

Notes 1 to 23 form an integral part of these condensed consolidated interim financial statements.

21

Notes to the consolidated interim financial statements for the six months ended 30 June 2015 1. General information

Xchanging plc and its subsidiaries provide a range of business processing services, primarily to the financial services and insurance industries, as well as procurement and technology services across industries.

Xchanging plc is a public limited company incorporated and domiciled in the UK. The address of its registered office is 25 Walbrook, London, EC4N 8AQ. The Company's ordinary shares are traded on the London Stock Exchange.

On 30 July 2015, the Board approved the condensed consolidated interim financial statements.

The financial information included in these condensed consolidated interim financial statements does not constitute full statutory financial statements within the meaning of section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 December 2014 were approved by the Board of Directors on 26 February 2015 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 sections 498 (2) or (3) of the Companies Act 2006.

These condensed consolidated interim financial statements have not been reviewed or audited by our auditors.

2. Basis of preparation

The condensed consolidated interim financial statements for the half year ended 30 June 2015 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, and with IAS 34, "Interim financial reporting" as adopted by the European Union. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2014 in the 2014 Annual Report, which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

Going concern

The Directors have reviewed the expected liquidity position of the Group for the period to 31 December 2016. The cash flows of the Group have been assessed against the Group’s available sources of finance on a monthly basis to determine the minimum and maximum expected levels of headroom. Based on this analysis, and an assessment of the potential cash risks, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its condensed consolidated interim financial statements.

3. Accounting policies

The accounting policies adopted in the preparation of these condensed consolidated interim financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2014.

4. Estimates The preparation of condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2014, with the exception of changes in estimates that are required in determining the provision for income taxes.

22

5. Seasonality of operations Our financial performance is expected to be more weighted to the second half of the year at an adjusted operating profit level. For the year ended 31 December 2014, 64.2% of adjusted operating profit accumulated in the second half of the year.

6. Segmental reporting Management has determined the operating segments based on the information presented to and reviewed by the Board (the chief operating decision-maker for the year), on which strategic decisions are based, resources are allocated and performance is assessed. The Board considers the business as follows:

• Business Processing Services that has two distinct components, Insurance Services and Financial Services. Insurance Services provides technology infrastructure and managed services, such as processing policies and premiums as well as handling claims, to the insurance market. It includes the workers’ compensation claims processing services business in Australia. Financial Services provides securities processing, investment account administration and fund administration in Germany, Italy and India for financial institutions.

• Technology Services provides insurance software, technology infrastructure management services and application management services to a range of customers.

• Procurement Services provides procurement services to a range of customers. Corporate provides the infrastructure, resources and investment to sustain and grow the Group, including performance management, and business management functions. Corporate is not considered an operating segment but its results are presented in order to reconcile reportable segment results back to the consolidated interim financial statements. Management uses net revenue and adjusted operating profit as measures of segment performance. Interest income and expenses are not allocated to sectors, as this type of activity is driven by the Group treasury function, which manages the cash position of the whole Group. Corporate costs reallocated to operating segments include depreciation and amortisation of centrally recognised other intangible assets, lease payments and other costs incurred centrally on behalf of other operating segments. The Group’s reportable segments account for inter segment sales, and transfers, as if the sales or transfers were to third parties, i.e. at current market prices. There have been no changes to the reportable segments as presented in the Annual Report for the year ended 31 December 2014. All figures reported are unaudited. Given the change being made in the Procurement business the segment note is likely to change for the year-end.

The segment information for the six months ended 30 June 2015 is as follows:

Unaudited

Insurance

Services Financial Services

Subtotal Business

Processing Services Technology Procurement

Corporate Total

Six months ended 30 June 2015 £m £m £m £m £m £m £m

Revenue 84.8 49.2 134.0 52.4 53.8 - 240.2

Net revenue 84.8 49.2 134.0 52.4 13.0 - 199.4

Adjusted operating profit/(loss) 24.4 4.0 28.4 4.1 (6.8) (5.3) 20.4

Adjusted operating profit margin 28.8% 8.1% 21.2% 7.8% (52.3%) - 10.2%

23

The segment information for the six months ended 30 June 2014 is as follows:

Unaudited

Insurance

Services Financial Services

Subtotal Business

Processing Services Technology Procurement

Corporate Total

Six months ended 30 June 2014 £m £m £m £m £m £m £m

Revenue 92.1 50.0 142.1 47.1 92.9 - 282.1

Net revenue 92.1 50.0 142.1 47.1 15.9 - 205.1

Adjusted operating profit/(loss) 22.3 3.8 26.1 2.7 (1.7) (7.1) 20.0

Adjusted operating profit margin 24.2% 7.6% 18.4% 5.7% (10.7%) - 9.8%

The depreciation and amortisation included in adjusted operating profit is as follows:

Insurance Services

Financial Services

Subtotal Business

Processing Services Technology Procurement Corporate Total

Six months ended 30 June £m £m £m £m £m £m £m

Depreciation and amortisation 2015

(2.0) (2.7) (4.7) (7.2) (2.5) (1.5) (15.9)

Depreciation and amortisation 2014

(1.5) (3.4) (4.9) (3.7) (1.7) (0.4) (10.7)

Reconciliation of Non-GAAP adjusted operating to IFRS statutory operating profit:

Unaudited Six months

ended 30 June 2015

Six months ended 30 June

2014 £m £m

Adjusted operating profit 20.4 20.0

Adjusting items:

- Amortisation of intangible assets previously unrecognised by an acquired entity (3.6) (1.8)

- Acquisition-related expenses1 (8.4) (2.5)

- Exceptional items (note 7) (49.5) 8.5

Operating (loss)/profit (41.1) 24.2

Net finance costs (3.4) (2.2)

Share of profit from joint venture 0.1 0.2

Taxation (3.1) (5.1)

(Loss)/profit for the year (47.5) 17.1

1Acquisition-related expenses include:

• £2.8 million expensed as part of the total amount payable to the sellers of MM4 in respect of the acquisition earn-out mechanism (£4.5 million deferred consideration was paid out during the period)

• £1.5 million expensed as part of the total amount payable to the sellers of Total Objects in respect of the acquisition earn-out mechanism (£0.8 million deferred consideration was paid out during the period)

• £0.7 million expensed as part of the total amount payable to the sellers of Spikes Cavell in respect of the acquisition earn-out mechanism

• £1.0 million expensed as part of the total amount payable to the employees of the businesses acquired from Agencyport in respect of the acquisition

• £0.3 million of professional fees for the acquisition of Spikes Cavell • £1.4 million of professional fees for the businesses acquired from Agencyport due to the CMA process • £0.7 million of acquisition abort fees

24

The tables below present revenue from continuing operations by the geographical location of customers and by category:

Six months ended 30

June 2015

Six months ended 30

June 2014 Revenue by geographical location £m £m United Kingdom 147.3 198.1 Germany 26.6 23.7 France 1.6 0.6 Italy 10.0 11.0 Spain 0.2 0.2 Other Continental Europe 8.0 7.1 United States of America 19.1 15.1 Australia 18.3 18.8 South East Asia 5.3 4.1 Rest of world 3.0 2.2 India 0.7 1.2 Revenue 240.1 282.1

Six months ended 30

June 2015

Six months ended 30

June 2014 Analysis of revenue by category £m £m Revenue from services 224.0 273.8 Revenue from sale of software licences 8.9 2.6 Sale of goods 7.2 5.7 Revenue 240.1 282.1

Material customers

One customer accounted for greater than ten per cent of the Group’s gross revenues. Revenues of £41.0 million, attributable to the Procurement segment, have been derived from this customer for the period ended 30 June 2015 (30 June 2014: £62.7 million).

Information about product/service

The information to report revenue by product/service is not available, as the cost to develop it would be excessive.

7. Exceptional items Exceptional items are those items that in the Directors’ view are required to be separately disclosed by virtue of their size or incidence and in order to improve a reader’s understanding of the financial statements. During the six months to 30 June 2015 the following exceptional items were recognised:

• Impairment of the Procurement sector goodwill of £47.0 million (refer to note 8) • An onerous contract provision of £2.8 million and an impairment of related contract assets of £1.3 million • The London Processing Centre Ltd Retirement & Death Benefits Scheme (the “LPC Scheme”) was

closed to future accrual, effective from 28 February 2015, resulting in curtailment income of £1.6 million.

8. Goodwill impairment The impairment charge of £47.0 million in the period relates to the impairment of the Procurement sector cash generating unit. Post the impairment charge the remaining goodwill balance is £6.4 million and the other Procurement sector assets totalling £11.2 million. These other Procurement sector assets are made up of customer

25

contracts and software for the MM4 and Spikes Cavell businesses, and other assets. During the period the Procurement sector made an adjusted operating loss of £6.8 million.

The recoverable amount of the CGU was determined by estimating the value in use for the sector. The key assumptions were 1.75% revenue growth per month of MM4 from 2016 onwards and 30% annual growth of Spikes Cavell. As a consequence the CGU has been impaired by £47.0 million. Should the MM4 acquisition actual growth rate achieved fall to 1.2% the remaining £6.4 million goodwill balance would also be impaired

9. Cash generated from operations

Unaudited Six months

ended 30 June 2015

Six months ended 30

June 2014 £m £m

(Loss)/profit before tax (44.4) 22.2

Net finance cost 3.4 2.2

Share of profit from joint ventures (0.1) (0.2) Operating (loss)/ profit (41.1) 24.2 Adjusted for non-cash items: - employee share-based payment charges 0.7 1.7

- depreciation of property, plant and equipment 3.1 3.0

- amortisation of other intangibles (including customer contracts) 11.8 7.1

- amortisation of pre-contract costs 1.0 0.6

-other non-cash items1 47.5 -

23.0 36.6

Changes in working capital:

- decrease/(increase) in trade and other receivables 8.8 5.5

- (decrease)/increase in payables2 (14.1) 12.2

- decrease in pensions (2.8) (1.3)

- decrease in provisions3 (2.8) (2.4)

Cash generated from operations 12.1 50.6

1Including £47.0 million goodwill impairment, (£1.6) million pension curtailment, £1.3 million asset write-off and £0.8 million other items 2Including £14.1 million working capital outflow at exit of BAES UK contract 3Including £2.8 million onerous contract and (£4.8) million cash out of restructuring provisions 10. Taxation

The income tax expense for the six months ended 30 June 2015 is recognised based on management’s estimate of the annual income tax rate on profit before tax expected for the full financial year. The estimated annual tax rate for the year to 31 December 2015 on adjusted profit before tax is 24.2% (the estimated equivalent tax rate applied to the six months ended 30 June 2014 was 22.7%). The rate was lower in 2014 due to the recognition of the tax benefit of historic losses.

11. Dividends A dividend of £6.8 million (2014: £6.1 million) in relation to the full year 31 December 2014 was paid in May 2015.

12. Share capital and share premium During the period to 30 June 2015 the Group issued 3,176,325 ordinary shares with a nominal value of 5 pence each to satisfy employee share awards that vested (30 June 2014: 2,137,087 ordinary shares). The weighted average price at the time of the vesting was 136.50 pence (30 June 2014: 161.79 pence) per share. During the

26

period to 30 June 2015 £0.1 million of shares were purchased by the Employee Benefit Trust (EBT) to satisfy share awards. The number of shares as at 30 June 2015 was 247,459,274 (31 December 2014: 244,282,949).

13. Business combinations

On 25 February 2015, the Group acquired 100% of the share capital of Spikes Cavell Analytic Limited (Spikes Cavell), a British company providing spend analytics technology and services mainly to public sector institutions in the UK and higher education authorities in the US, but also increasingly to the private sector. Based in Newbury (UK) and Virginia (US) and with 35 employees, Spikes Cavell brings to Xchanging a portfolio of c. 60 existing lead customers, some of which represent groups. The acquisition extends Xchanging’s strategy to differentiate its products and services through technology-enablement. The Spikes Cavell technology will augment our existing MM4 platform, enabling MM4 to achieve ‘full-suite status’ in the sourcing technology sector.

The total consideration was £6.9 million. The contingent consideration arrangement requires the Group to pay the former owners of Spikes Cavell £3.1 million of which £2.7 million is expensed as part of the earnings mechanism and £0.4 million is recognised within the purchase price. £3.8 million cash was paid up front. The revenue included in the consolidated income statement from 25 February 2015 to 30 June 2015 contributed by Spikes Cavell was £0.6 million. Spikes Cavell also contributed a loss before tax of £0.2 million (AOP loss of £0.1 million) over the same period. Had Spikes Cavell been consolidated from 1 January 2015, the consolidated income statement for the six months ended 30 June 2015 would show revenue of £0.7 million and a loss before tax of £0.7 million. The fair values of significant assets and liabilities acquired are set out below:

Fair value £m Intangible asset – Customer contracts and brand 3.4 Intangible asset – Software 0.4 Other assets and liabilities (0.2) Deferred income tax liabilities (1.3) Net assets acquired 2.3

Estimates and judgement were applied in determining the fair values of customer contracts of £3.4 million. The fair values were estimated by applying the income approach to estimates of future cash flows. The adjustment to deferred tax liabilities relates to the fair value adjustments for intangible assets. Goodwill represents the value of potential future sales, (including the ability to cross Spikes Cavell products to existing customers), and the reduced costs of the combined Spikes Cavell/Xchanging Business.

Details of net assets acquired and goodwill are as follows:

£m Fair value of purchase consideration - Cash on acquisition1 3.8 - Deferred consideration 0.4 Total fair value of purchase consideration 4.2 Less: Fair value of net assets acquired (2.3) Goodwill 1.9

1£3.8 million was paid up front and £0.4 million was deferred consideration.

Goodwill has been allocated to the Procurement sector CGU. Note no assets acquired with Spikes Cavell have been impaired as a result of the Procurement impairment testing.

Acquisition-related costs of £0.3 million have been charged to administrative expenses in the consolidated income statement for the period-end.

27

14. Other intangible assets The carrying value of other intangible assets of £127.5 million at 30 June 2015 increased by £4.5 million compared to £123.0 million at 31 December 2014. Intangible assets have increased by £13.5 million (30 June 2014: £17.1 million) as a result of net additions £3.8 million due to the acquisition of Spikes Cavell, and decreased due to amortisation of £11.8 million (30 June 2014: £7.1 million). Note intangible assets are also affected by a foreign exchange movement of £1.0 million.

15. Property, plant and equipment The carrying value of property, plant and equipment of £16.0 million at 30 June 2015 decreased by £1.9 million compared to £17.9 million at 31 December 2014. Property, plant and equipment has increased by £1.2 million (30 June 2014: £7.1 million) of additions, and decreased due to depreciation of £3.1 million (30 June 2014: £3.0 million). 16. Cash and cash equivalents

Unaudited Audited

30 June 2015 £m

31 December 2014 £m

Cash at bank and in hand - held in wholly owned subsidiaries 88.4 89.8 Cash at bank and in hand - held in Xchanging Solutions 2.5 2.8 Cash at bank and in hand - held in Enterprise Partnerships 9.3 23.5 Cash at bank and in hand 100.2 116.1 Short-term deposits - held in wholly owned subsidiaries 8.4 3.0 Short-term deposits - held in Xchanging Solutions 4.6 5.0 Short-term deposits - held in Enterprise Partnerships 0.8 5.1 Cash and cash equivalents 114.0 129.2

Xchanging receives cash from Enterprise Partnerships through contractual licence fees and dividends. At 30 June 2015 a total £3.1 million (31 December 2014: £6.5 million) was due from Enterprise Partnerships to Xchanging as accrued but unpaid licence fees. Enterprise Partnerships operate a 100% profit distribution policy and £7.0 million (30 June 2014: 6.4 million) of profit earned in the six months ended 30 June 2015 is expected to be distributed to Xchanging in 2016.

Also included in the cash at bank and in hand held in wholly owned subsidiaries are £33.6 million of customer cash deposits (at 31 December 2014: £34.5 million, at 30 June 2014: £34.5 million) held in Fondsdepot Bank. An equal customer cash accounts liability is recognised on the balance sheet.

£0.4 million (at 31 December 2014: £0.3 million) of the Group’s cash is held as collateral against various bank guarantees.

The fair values of short-term loans deposits with a maturity of less than one year are assumed to approximate to their book values.

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17. Net cash

The consolidated movement in net cash for the first six months of the year is:

Unaudited Six months

ended 30 June 2015

Six months ended 30 June

2014 £m £m

Decrease in cash and cash equivalents in the period (8.3) (0.4)

Movement in bank loans and overdrafts (30.0) (10.0)

Movement on finance lease liabilities and other debt 0.2 0.4

Change in net cash resulting from cash flows (38.1) (10.0)

Exchange movements (6.9) (2.6)

Movement in net cash in the period (45.0) (12.6)

Net cash at the beginning of the period 13.7 120.1

Net cash at the end of the period (31.3) 107.5

Movement in net cash

Cash and cash

equivalents

Bank loans and revolving credit

facilities

Finance lease

liabilities

Total

£m £m £m £m At 1 January 2014 audited

121.3 - (1.2) 120.1

Cash flow (0.4) (10.0) 0.4 (10.0)

Exchange movements (2.6) - - (2.6)

30 June 2014 unaudited 118.3 (10.0) (0.8) 107.5

Cash flow 8.8 (105.0) 0.3 (95.9)

Cash acquired 3.3 - - 3.3

Exchange movements (1.2) - - (1.2)

31 December 2014 audited

129.2 (115.0) (0.5) 13.7 Cash flow (8.3) (30.0) 0.2 (38.1)

Exchange movements (6.9) - - (6.9)

30 June 2015 unaudited 114.0 (145.0) (0.3) (31.3)

Included within net current and non-current borrowings in the consolidated balance sheet of £143.3 million (30 June 2014: £8.9 million) is £1.9 million (2014: £1.5 million) of capitalised loan fees relating to the £125.0 million multi-currency revolving credit facility. Capitalised loan fees are not included within net cash.

During the six months ended 30 June 2015, the Group drew down £30.0 million of debt under the revolving credit facility (30 June 2014: drew down £10.0 million).

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18. Other financial liabilities Unaudited Audited

30 June 2015

31 December 2014

£m £m

Current other financial liabilities

Derivative cash flow hedge 0.1 -

Deferred consideration 4.5 3.2

Total current other financial liabilities 4.6 3.2

Non-current other financial liabilities

Deferred contingent consideration on acquisitions - 0.7

Total non-current other financial liabilities - 0.7

19. Financial Instruments

Financial risk management

The multi-national nature of the Group’s operations and their financing exposes it to a variety of financial risks: • market risk (including foreign exchange risk, fair value risk and interest rate risk); • credit risk; • liquidity risk; • price risk; and • capital risk.

The condensed consolidated interim financial statements do not include all financial risk management information and the disclosures required in the Annual Report; they, therefore, should be read in conjunction with the Group’s Annual Report as at 31 December 2014, pages 121-122. There have been no changes in the risk management department since the year ended 31 December 2014 or in any risk management policies.

The only significant changes in financial risks since the 2014 Annual Report are in the foreign exchange risk and liquidity risk as follows:

Foreign exchange risk At 30 June 2015 the Group had forward foreign exchange contracts of £18.9 million, €4.3 million and USD $12.5 million (30 June 2014: £13.9 million, €3.4 million and USD $8.5 million) in place to mitigate foreign exchange volatility relative to the Indian Rupee. Of these, £17.5 million, €3.9 million and USD $11.2 million (30 June 2014: £12.9 million, €3.2 million and USD $7.5 million) were designated as cash flow hedges of highly probable Sterling, Euro and US Dollar revenue. The cash flow hedges were assessed to be highly effective as at 30 June 2015 and a net unrealised loss of £0.8 million (30 June 2014: £0.2 million net unrealised loss) was recognised in equity. The cash flow hedges fix the Indian Rupee value of Sterling, Euro and US Dollar cash flows expected to arise during the period 01 July 2015 to 31 May 2016. Further the Group has booked forward foreign exchange contracts of USD $25.0 million, AUD $5.0 million and €17.0 million to hedge the foreign exchange exposure arising on its foreign currency net assets in its balance sheet and offsets the retranslation of foreign currency net assets. The fair value movement of these derivatives is recognised in the income statement. Liquidity risk

As at 30 June 2015, the Group had available cash of £114.0 million (30 June 2014: £118.3 million) and undrawn committed debt facilities of £29.2 million (30 June 2014: £99.0 million). On 21 April 2015 the Group agreed with its lenders to increase the size of its committed debt facility by £10.0 million to £175.0 million.

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Fair value estimations

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

• Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability,

either directly (that is, as prices) or indirectly (that is, derived from prices). • Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable

inputs). The determination of the fair value of level 1, 2 and 3 financial instruments has not changed since 31 December 2014. For the valuation techniques used refer to Note 24 on pages 117-120 of the 2014 Annual Report. There were no changes in valuation techniques in the period. The following table presents the Group’s assets and liabilities that are measured at fair value at 30 June 2015:

Unaudited Level 1 Level 2 Level 3 Total £m £m £m £m Assets Held-for-trading equity securities 0.7 - - 0.7 Available-for-sale financial assets 2.7 - - 2.7 Total assets 3.4 - - 3.4 Liabilities Derivative cash flow hedge - 0.1 - 0.1 Deferred consideration - - 4.5 4.5 Total liabilities - 0.1 4.5 4.6

The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2014:

Audited Level 1 Level 2 Level 3 Total £m £m £m £m Assets Held-for-trading equity securities 1.0 - - 1.0 Available-for-sale financial assets 2.6 - - 2.6 Derivative Cash Flow hedge - 0.5 - 0.5 Total assets 3.6 0.5 - 4.1

Liabilities Deferred consideration - - 3.9 3.9 Total liabilities - - 3.9 3.9

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Level 3 instruments

The following table presents the changes in level 3 instruments that relate to the put options to acquire the non-controlling interest in Enterprise Partnerships for the period ended 30 June 2015:

Deferred consideration

£m At 1 January 2015 3.9

Recognised in the income statement 5.0

Paid in the period (7.6)

Recognised on acquisition 0.4

Reclass from accruals 2.8 At 30 June 2015 4.5

Fair value of financial assets and liabilities measured at amortised cost The fair value of the following financial assets and liabilities approximate their carrying value (including those presented within the held for sale disposal group):

• Trade and other receivables • Cash and cash equivalents • Trade and other payables • Borrowings and loans • Customer accounts • Deferred contingent consideration on acquisitions

20. Provisions

Onerous leases and

contracts Restructuring Litigation provision

Employee related

provisions Other Total £m £m £m £m £m £m

At 1 January 2015 (audited) 1.6 8.9 4.4 4.4 0.6 19.9

Charged/(credited) to the income statement: - Provided in the period 2.8 - - - - 2.8 - Used in the period (0.6) (4.8) (0.4) - - (5.8)

Exchange adjustments (0.1) (0.5) - - (0.1) (0.7) At 30 June 2015 (unaudited) 3.7 3.6 4.0 4.4 0.5 16.2

The total provisions balance includes £15.2 million (2014: £18.0 million) presented as current, with the remaining £1.0 million (2014: £1.9 million) presented as non-current.

The nature of each provision remains consistent with the annual financial statements for the year ended 31 December 2014 as described on page 124 of the 2014 Annual Report.

An onerous contract provision of £2.8 million was booked in the period and was treated as an exceptional item. It is expected to be utilised over the period to the first quarter of 2017.

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21. Contingent liabilities

The Group has provided £0.8 million of guarantees (30 June 2014: £16.0 million) under its £175.0 million revolving credit facility and a further £1.8 million (30 June 2014: £2.7 million) are guarantees issued under separate facilities.

In the ordinary course of business, the Group is subject to legal proceedings, claims, and litigation, and is currently a defendant in a claim alleging a breach of warranties in the US. In 2009, the Group acquired 75% of the Indian Company, Cambridge Solutions Limited (‘CSL’) (now called Xchanging Solutions Limited). The claim in question relates to a contract that was awarded to an American subsidiary of CSL in 2006 and was subsequently sold by that American subsidiary, prior to the acquisition of CSL by the Group. Based on the facts available to date and legal advice thereon, the Company believes it is not probable that the claim will be successful or that there will be a material adverse impact on the Group. Fact discovery and proceedings are ongoing in this matter. The Group has given certain indemnities and warranties in the course of disposing and acquiring of businesses and has given guarantees for operational performance of its subsidiaries for contracts entered into in the ordinary course of trading. The Group does not believe that any liability in respect of these guarantees is likely to have a material effect on the Group’s financial position.

22. Retirement benefit obligations

Changes in the pension assumptions from those presented in the annual financial statements for the year ended 31 December 2014 relate mainly to the discount rate applied. The discount rate applied to the UK retirement benefit plans was revised from 3.6% as at 31 December 2014 to 3.8% as at 30 June 2015 in line with market data. This change has had the impact of decreasing the Group’s retirement benefit obligation by £10.9 million as at 30 June 2015. During the period the London Processing Centre Ltd Retirement & Death Benefits Scheme (the “LPC Scheme”), which provided benefits based on members’ final salaries, was closed to future accrual, effective from 28 February 2015.

23. Related party transactions

The Group’s significant related parties are as disclosed in note 30, on pages 130 to 131 of the 2014 Annual Report. There have been no changes in related parties during the period. 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 are set out in the table below:

Sales/(purchases) Receivables/ (payables)

Unaudited Unaudited Audited

Six months ended

30 June 2015

Six months ended

30 June 2014

As at 30 June

2015

As at 31 December

2014

Services provided by/to the Group £m £m £m £m Securities processing services

- 5.9 - -

Processing, expert and data services

0.8 1.3 0.2 0.2

IT costs, premises, divisional corporate charges and other services in support of operating activities

(0.1) 0.2 (0.1) 0.2

Operating systems, development, premises and other services in support of operating activities

- -

- -

Consortium relief 0.1 - - -

Other - (0.4)

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Transactions with Directors and key management The total gain made by Directors during the year from the exercise of share options was £ Nil million (2014: £0.2 million)

No balances are outstanding from current Directors and key management personnel.

Note 6 and note 19 detail the amounts spent on deferred consideration during the period for previous acquisitions. The former owners of the acquisitions are employees of Xchanging that have transitioned into the Xchanging Group on acquisition; one of these employees was an Executive Director of the Group in the period and was paid £2.3 million deferred consideration in the period.

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Statement of Directors’ responsibilities

The Directors confirm that this set of condensed consolidated interim 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 DTR4.2.4(R), DTR 4.2.7(R) and DTR 4.2.8(R), namely:

the condensed consolidated interim financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss;

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.

A list of current directors is maintained on the Xchanging plc website www.xchanging.com.

By order of the Board of Directors

David Bauernfeind Kenneth Lever Chief Financial Officer Chief Executive Officer 30 July 2015 30 July 2015