4 March 2016

Xchanging plc

Full year results for the twelve months ended 31 December 2015

£m (unless %) 2015 2014

Net Revenue1 400.5 406.8

Adjusted Operating Profit2 54.6 55.8

Adjusted Operating Profit Margin 13.6% 13.7%

Statutory Operating (Loss)/Profit (38.5) 36.6

Adjusted EPS - Basic 8.49 11.86

Net Cash3 (27.8) 13.7

Xchanging's share of Net Cash (61.8) (31.6)

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 (2015: £74.0 million expense 2014: £7.1 million expense), amortisation of intangible assets previously unrecognised by acquired entities (2015: £6.5 million 2014: £6.1 million) and acquisition-related expenses (2015: £12.6 million 2014: £6.0 million).

3. Net cash is calculated as cash and cash equivalents less bank loans and revolving credi t facilities and finance lease liabilities.

Geoff Unwin, Chairman, commented: “At the half year 2015 we commented that the outlook

for the full year 2015 was for a trading performance in line with the prior year. The outcome

for 2015 was broadly in line with this, with net revenue of £400.5 million compared with £406.8

million in 2014, and adjusted operating profit of £54.6 million compared with £55.8 million in 2014.

During the year very disappointing events and performance occurred within the Procurement

sector and a ‘Split and Fix’ plan, announced at the half year, was implemented in the second

half of the year. More positively, it was especially pleasing to see the proving of our insurance

software business Xuber, with material contracts being signed as we turned into 2016, in addition to the continuing solid performance of the core BPS business.

Whilst the operational developments and progress of the company are reviewed later in this

report, strategically, a review of 2015 must be dominated by the takeover bid activity that took

place in the second half of the year. Formal announcements have been made, as required by

regulation, throughout the ongoing course of the bid process. Most significantly, following a

formal bid made on 9 December 2015, which was supported by Xchanging’s Board, on 18

January 2016, Computer Sciences Corporation (‘CSC’) declared their bid unconditional as to

shareholder acceptances having secured shareholder commitments in respect of, or direct

ownership of, approximately 87.06% of Xchanging’s existing issued share capital.

Subsequently, an announcement by CSC on 8 February 2016 confirmed this level had risen to approximately 91.78%.

On 15 February 2016, CSC announced that the US merger control condition set out in their

offer document had been satisfied. There are further regulatory conditions to be satisfied

before CSC’s bid can become wholly unconditional and the process of obtaining these is

underway by CSC. In order to accommodate this process, it was agreed with the Takeover

Panel that the date by which the offer must become or be declared unconditional would be extended to 16 May 2016.”

Enquiries

Maitland Tel: +44 (0) 207 379 5151

Emma Burdett

Dan Yea

www.xchanging.com

@XchangingGroup

Linkedin/company/xchanging

Cautionary Statement: This announcement contains forw ard-looking statements that are based on current expectations or beliefs, as w ell as

assumptions about future events. These forward-looking statements can be identif ied by the fact that they do not relate only to

historical or current facts. Forward-looking statements often use w ords such as anticipate, target, expect, estimate, intend, plan,

goal, believe, w ill, may, should, w ould, could, is confident, or other w ords 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 w hich

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

one or more key suppliers, the outcome of business or industry restructuring, the outcome of any litigation, changes in economic

conditions, currency f luctuations, changes in interest and tax rates, changes in raw material or energy market prices, changes in

law s, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the f ailure 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 forw ard-looking statements, and w ill 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 announcements. Xchanging therefore w ill comply w ith 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.

Results for the twelve months ended 31 December 2015

Chairman’s statement

OVERVIEW OF THE YEAR

At the half year 2015 we commented that the outlook for the full year 2015 was for a trading

performance in line with the prior year. The outcome for 2015 was broadly in line with this,

with net revenue of £400.5 million compared with £406.8 million in 2014, and adjusted

operating profit of £54.6 million compared with £55.8 million in 2014.

During the year very disappointing events and performance occurred within the Procurement

sector and a ‘Split and Fix’ plan, announced at the half year, was implemented in the second

half of the year. More positively, it was especially pleasing to see the proving of our insurance

software business Xuber, with material contracts being signed as we turned into 2016, in addition to the continuing solid performance of the core BPS business.

STRATEGIC DEVELOPMENT

Whilst the operational developments and progress of the company are reviewed later in this

report, strategically, a review of 2015 must be dominated by the takeover bid activity that took

place in the second half of the year. Formal announcements have been made, as required by

regulation, throughout the ongoing course of the bid process. Most significantly, following a

formal bid made on 9 December 2015, which was supported by Xchanging’s Board, on 18

January 2016, Computer Sciences Corporation (‘CSC’) declared their bid unconditional as to

shareholder acceptances having secured shareholder commitments in respect of, or direct

ownership of, approximately 87.06% of Xchanging’s existing issued share capital.

Subsequently, an announcement by CSC on 8 February 2016 confirmed this level had risen to approximately 91.78%.

On 15 February 2016, CSC announced that the US merger control condition set out in their

offer document had been satisfied. There are further regulatory conditions to be satisfied

before CSC’s bid can become wholly unconditional and the process of obtaining these is

underway by CSC. In order to accommodate this process, it was agreed with the Takeover

Panel that the date by which the offer must become or be declared unconditional would be extended to 16 May 2016.

BOARD

There were two changes to the Board composition in 2015. Effective 31 December 2015 we

saw the retirement of Ken Lever from the role of Chief Executive, with Craig Wilson succeeding

him, effective 1 January 2016, having joined the Board as Chief Executive Designate on 5 October 2015.

The Board would like to thank Ken for his outstanding contribution to Xchanging during five

intensive years of transformation, and wish him well in his future endeavours. The Board also

welcomes Craig to his new role.

As announced at the half year 2015, effective 31 December 2015, Michel Paulin stood down

from his role as Non-Executive Director. The Board would like to thank Michel also for his contribution over his six year tenure of office.

PEOPLE

Once again this year I would like to thank all our employees for their unstinting dedication and

hard work. They have tackled the operational challenges of the year resolutely and pressed

ahead with enthusiasm in developing our significant potential. In the latter part of the year,

they have remained steadfast despite the inevitable uncertainties arising from the bid activity. Xchanging would not be the valuable asset it is without their contribution.

DIVIDEND

It is a condition of CSC’s offer that no dividend is recommended or paid and so the Board is not proposing one to shareholders.

ANNUAL REPORT

Given the advanced stage of CSC’s bid, although there remain regulatory conditions to be

satisfied, our 2015 annual report has been written in a curtailed form against the backdrop of

a likely change of control in the near future. However, at the time of writing, Xchanging remains an independent business, and the views in the annual report reflect this position.

CEO report

INTRODUCTION

I was appointed by the Board in September 2015 to succeed Ken Lever from 1 January 2016.

I started as Chief Executive Designate on 5 October 2015 which has given me an opportunity

to assess the business, the strategy, the events of 2015, and to ensure that we have a sound

foundation for the future – whether this is as an independent company or as part of another

entity.

At the half year 2015 we commented that the outlook for the full year 2015 was for a trading

performance in line with the prior year. The outcome for 2015 was broadly in line with this,

with net revenue of £400.5 million (2014: £406.8 million), adjusted operating profit (‘AOP’) of

£54.6 million (2014: £55.8 million) and operating cash flow (‘OCF’) of negative £10.4 million

down from the prior year (2014: £6.5 million), due largely to the working capital unwind of

some £18.0 million from one contract exit in the UK.

Coming into 2015, Xchanging had completed the turnaround from being a Business Process

Outsourcing company – characterised by a small number of large legacy contracts – to being

a technology-led business services company. The elements of the strategy for 2015 were

clearly set out in the 2014 annual report. In summary:

Simplify the structure around Business Processing Services (‘BPS’), Technology (including the Xuber insurance software business) and the Procurement business;

Invest in specific technology developments and acquisitions to further differentiate these businesses; and

Complete the stabilisation or rundown of underperforming legacy BPO businesses and contracts.

In Insurance BPS, the strategy was to build on the unique relationship we already have with

Lloyd’s and the International Underwriters Association – our XIS and XCS joint ventures – by

offering an enhanced range of elective services and by being an effective technology provider

to our partners as they respond to the competitive challenges of the global insurance market.

In Financial Services BPS, the strategy was to build on the capital markets businesses in Italy

and Germany which had been stabilised through 2014.

In Technology, the strategy had two distinct elements: continue to invest in the Xuber business

by integrating Total Objects and the businesses acquired from Agencyport into our existing

business, and to grow the largely India-based Application Services business by providing

clients with an agile alternative to the established tier-1 Indian ‘pure play’ providers.

In Procurement, the strategy was to build a differentiated, technology-led proposition based

on the MM4 technology platform and enhanced by the Spikes Cavell spend-analytics solution

(acquired in February 2015); reducing the reliance on a small number of legacy procurement

BPO contracts.

It is clear that some of the most important elements of this strategy – in particular the

investments in the Xuber business – have worked well and are bearing fruit. It is equally clear

that other elements have not worked well; the problems we had with the Procurement

business, albeit a small part of the overall business, were set out in our half year update in

July. I will cover the 2015 performance in each of the businesses below.

Following the half year update, the second half of the year was overshadowed by the takeover

bid activity. This is referenced in the Chairman’s statement. Nonetheless, this report has been

prepared as if the Company is to remain independent.

BUSINESS PROCESSING SERVICES (‘BPS’)

BPS has performed strongly despite a number of anticipated challenges, including the

decision by Aon to take back in-house on-shore claims processing; the decision by Lloyd’s to

change the responsibilities of the lead follower which reduced our claims processing volume

(together these changes reduced net revenue by £18.9 million); and the weakening of the

Euro and Australian dollar which adversely impacted net revenue by £2.8 million. Despite

these and other challenges, net revenue for this business was £262.2 million (2014: £282.4

million). AOP was £61.0 million (2014: £64.6 million), representing an AOP margin of 23.3%

(2014: 22.7%), 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 of growth from 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 are now starting to exploit the software assets we have in Xuber with existing BPS clients

in the London Market. We have combined our original Binder 360 offering with BinderCloud

from the Total Objects acquisition. The new offering, BinderCloud 360, sits at the heart of our

new menu of Delegated Underwriting Services. Launched in 2015, the service has been well

received in the market, winning nine prestigious broker and carrier customers – including

Catlin and Argo.

We are working closely with Lloyd’s of London to provide support for the Central Services

Refresh Programme (‘CSRP’) – part of the wider market modernisation. Within this, our current

programme of new technology introductions, due to continue into 2016, is being well received.

Our investment in 2015 of £8.1 million in developing this technology is key to ensuring that we

remain at the heart of the London Market and contribute strongly to its competitiveness.

In the later part of the year, Lloyd’s appointed Xchanging as their technology and processing

partner for the Singapore Shared Service hub and we have already enrolled a number of

managing agents in this service.

During the second half of the year we also made the decision to impair the Netsett asset by

£2.9 million. Although we believe the long-term potential for this solution remains strong – a

net settlement requirement forms one element of the London Market Target Operating Model

– it is clear that in the short term, revenues from Netsett were too uncertain in terms of timing

and quantum to justify the asset valuation.

In Australia, Xchanging continues to be a top performing service provider to the State of

Victoria for the WorkSafe workers’ compensation insurance service. This contract is being

retendered and we think we are well-placed to maintain or grow our share of the transaction

volume in the second half of 2016. We have also attracted a number of new customers in

2015 to the X-alt platform in which we have a 90% stake and launched in April. In 2015 we

renewed the Toyota workers’ compensation contract. Separately, the exit from the workers’

compensation contract in the State of New South Wales has been completed without incident.

In our Financial Services BPS businesses we have made steady progress in Italy and

Germany through 2015. In 2014 Xchanging took full control of Fondsdepot Bank in Germany

from AGI and we have continued to invest in digitalisation to improve the productivity and

competitiveness of this business. In Italy, we completed the stabilisation and integration of the

two business (Kedrios and AR Enterprise).

TECHNOLOGY (INCLUDING XUBER)

The Technology business, including the Xuber insurance software business, has also

performed well, despite the comparative effect of the exit from the London Metal Exchange

(‘LME’) contract in May 2014 (following the decision to in-source this service after the

exchange was acquired by Hong Kong Exchanges and Clearing Limited), and the impact on

AOP of a higher amortisation charge of £11.7 million (2014: £8.4 million) from the increased

investments in Xuber and acquisitions. Net revenue was £113.6 million (2014: £93.0 million).

AOP was £14.5 million (2014: £6.8 million), representing an AOP margin of 12.8% (2014:

7.3%).

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

(‘CMA’) 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. In the

meantime, this business continued to perform on a standalone basis in-line with our

expectations and in-line with the acquisition business plan. Following CMA clearance, we have

now completed the integration of the businesses acquired from Agencyport into our Xuber

insurance software business, realising the synergies, product offering and new market

opportunity benefits envisaged at the time of the acquisition.

Similarly, the Total Objects acquisition, completed in December 2014, is contributing well in

its first full year and has been successfully building its customer base. Our Xuber insurance

software business continues to strengthen its profile in the market signing over 30 new

customers in 2015 across all of Xuber’s software solutions. Three contracts are particularly

significant: the first, a multi-year contract with the health service and insurance group Cigna

covering initial licence and maintenance services and also future services provision; the

second, with Aon to provide Xuber software, implementation services, ongoing support and

hosting for its wholesale broking operations platform for the London Market; the third, a

contract with Ariel Re which highlights Xuber’s multi-territory capability.

A number of implementations including Everest Re are at an advanced stage of

implementation. Building on our installed base of more than 200 customers, and with a strong

pipeline, we remain confident in the growth potential of the Insurance Software business in

2016 and beyond.

In our Application Services business, the strong growth momentum continues. We have won

a significant number of new clients and substantially increased our portfolio of work with our

existing customers. With nearly 2,000 software engineers, located across Bangalore, Gurgaon

and Chennai and other centres, our Application Services business has seen steady growth

over the last 3 years, moving to a strong profit contributor in 2015. We provide a range of

applications services to a broad range of small and medium sized customers (mostly in the

US, Europe and Singapore) who prefer to work with Xchanging rather than a tier-1 global

integrator because we can provide a service which is more agile and more tailored to their

needs.

Infrastructure Management Services (‘IMS’) has been a significant contributor to the

Technology business performance in 2015. The business largely runs out of our own facilities

in the UK and utilises suppliers and partners to provide IT infrastructure, data centre and

network services. Approximately 55% of IMS revenues underpin offerings delivered by Xuber

and BPS and this allows Xchanging to offer clients solutions in any required mode of operation:

on-premise licence only; off-premise, fully-managed service; managed (dedicated) cloud

service; software as a service (‘SaaS’); or hybrid. Complementing IMS, the Data Integration

business continues to do well and allows Xchanging to offer clients an end-to-end service for

their network needs, from design all the way through to systems installation and management.

PROCUREMENT

Although only a small part of the business (some 6% by revenue), as foreshadowed in our

First Quarter 2015 Update published in April, and updated in the half year statement in July,

the Procurement business has delivered extremely poor performance in 2015. This resulted

in net revenue of £24.7 million (2014: £31.3 million), an AOP loss of £10.9 million (2014: £2.5

million loss) and £74.2 million of exceptional charges. Without the significant failure of the

Procurement business, the Group would have exceeded the market expectations on AOP set

at the start of 2015.

At the core of the issues in Procurement was a weak performance in the traditional

procurement BPO business, exacerbated by clients’ decisions to reduce volumes; gain-

sharing thresholds which were not achieved; failure to match the rate of cost reduction to

revenue declines; contract exits and contract renegotiations. These circumstances persisted

throughout the year. We also noted that in the first half of 2015 we would bear the costs of the

implementation process for the new Tail-end Spend Management (‘TSM’) business won in the

second half of 2014, with significant benefits expected to start showing in the second half of

the year. Whilst the costs of implementation were incurred in the first half as expected, the

associated stream of new revenue was slow to gain momentum and significantly lagged our

expectations, following the decision by our most significant client to sell the business that

would have generated most of the volume. As a result, a mutual decision was made to exit

the contract at the end of 2015. The combined effect of the traditional outsourcing and TSM

businesses has significantly impacted the Procurement business result overall for 2015.

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

had been undertaken to manage the cost base. However, despite reducing the cost base,

anticipated new contracts in the second quarter did not materialise, resulting in a deterioration

of the financial year forecast for Procurement overall. This resulted in the ‘Split and Fix’ plan

being announced at the half year.

The elements of this plan were:

move the comparatively healthy UK BPO contracts into our BPS business;

move MM4, Spikes Cavell and the few North American procurement BPO contracts into the Technology business;

run-down the remaining procurement BPO contracts, including our business in France;

materially reduce the overhead in the business in the second half of the year; and

review the balance sheet judgements for Procurement in the light of the performance.

Elsewhere in this report we have detailed the balance sheet judgements relating to the

Procurement business: goodwill impairment of £59.3 million; asset impairments of £8.0 million,

and restructuring and onerous contract provisions of £6.9 million. Also the exit of one of the

UK procurement BPO contacts in 2015 resulted in a one-off working capital outflow of £18.0

million.

The ‘Split and Fix’ plan is now substantially complete. We will not have a discrete Procurement

business going forward.

In the light of the problems experienced in the Procurement business I have examined the

controls regime across Xchanging to ensure that the issues experienced in the Procurement

business are not repeated elsewhere – whether or not Xchanging continues as an

independent company. As a consequence of this review, certain additional controls have been

or will be added to other parts of the business to prevent similar events occurring.

CONCLUDING REMARKS AND OUTLOOK

The strategic imperative for the business can now be summarised as follows:

Simplify the business around its core value proposition – to be the leading provider of technology-enabled business solutions to the global insurance industry;

Continue to develop the relationship we have with the London Market by focusing on delivery performance, value for money and innovation;

Bring the power of the Xuber portfolio to bear for existing clients and new clients in North America and Asia, helping them to compete in the digital, global marketplace for insurance; and

Determinedly improve the contribution and predictability of all our businesses.

The foundations of this plan are strong. The organisational simplifications that are underway,

together with the recent successes in the Xuber business with Aon and Cigna, and the success

we are starting to see in the BPS business as we better exploit the capabilities we have across

the firm, especially in Xuber, provide added confidence in the 2016 plan. Despite the

uncertainty about our future ownership, the management team and I feel confident that with

our plan, our clients, our people and our capabilities we can look forward to a year of revenue and profit growth in 2016 and a successful year for all our stakeholders.

Financial review

Financial indicators for 2015 are as follows:

£m (unless %) 2015 2014

Revenue 440.2 573.5

Net Revenue1 400.5 406.8

Adjusted Operating Profit2 54.6 55.8

Adjusted Operating Profit Margin 13.6% 13.7%

Statutory Operating (Loss)/Profit (38.5) 36.6

Adjusted Operating Profit before Tax 46.9 51.1

Adjusted EPS - Basic 8.49 11.86

Statutory EPS - Basic (27.55) 6.62

Operating Cash Flow3 (10.4) 6.5

Adjusted Cash Conversion4 0.7% 17.2%

Net Cash5 (27.8) 13.7

Xchanging's share of Net Cash (61.8) (31.6)

Equity Free Cash Flow6 (19.0) (7.6)

Return on Invested Capital7 20.9% 21.0%

Economic Profit8 21.4 24.9

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 r echarged to the customer.

2. Adjusted operating profit excludes exceptional items (2015: £74.0 million expense 2014: £7.1 million expense), amortisation of intangible assets previous l y unrecognised by acquired entities (2015: £6.5 million 2014: £6.1 million) and acquisition-related expenses (2015: £12.6 million 2014: £6.0 million).

3. Operating cash flow is calculated as cash generated from operations less net capital expenditure (including pre-contract costs) (2015: £36.0 million 2014: £43.4 million) and dividends to non-controlling interests (2015: £12.5 million 2014: £11.2 million).

4. Adjusted cash conversion is calculated as operating cash flow, after adding back the cash impact of exceptional items (2015: £7.2 million inflow 2014: £0.7 million outflow) acquisition-related expenses (2015: £3.1 million 2014 £1.7 million) and the movement in customer cash accounts held by Fondsdepot Bank (2015: £0.5 million 2014: £0.7 million outflow) divided by adjusted operating profit.

5. Net cash is calculated as cash and cash equivalents less bank loans and revolving credit facilities and finance lease liabili ties. 6. Equity free cash flow is calculated as operating cash flow less cash tax (2015: £4.7 million 2014: £12.4 million) and net interest paid including dividends

received (2015: £3.9 million, 2014: £1.7 million). 7. Return on invested capital is adjusted operating profit (2015: £54.6 million 2014: £55.8 mil lion) less a tax charge at the Group’s effective tax rate (2015: 24.7%

2014:14.9%), divided by invested capital. Invested capital (2015: £196.3 million 2014: £226.3 million) is calculated as the Group’s net assets (2015: £168.5

million 2014: £240.0 million), less net cash (2015: (£27.8 million) 2014: £13.7 million). 8. Economic profit is adjusted operating profit (2015: £54.6 million 2014: £55.8 million) less a tax charge at the Group’s effec tive tax rate (2015: 24.7% 2014:

14.9%), less a charge for invested capital. The charge for invested capital is calculated as the Group’s invested capital (as defined above, (2015: £196.3 million 2014: £226.3 million)) multiplied by the Group’s weighted average cost of capital, being 10.0% (2014: 10.0%) .

GROUP FINANCIAL PERFORMANCE

The trading performance for the 2015 year, on an adjusted basis, was broadly in line with

2014. Net revenue was £400.5 million (2014: £406.8 million), adjusted operating profit (‘AOP’)

was £54.6 million (2014 £55.8 million) and operating cash flow (‘OCF’) was negative £10.4

million down from the prior year (2014 £6.5 million), due largely to the working capital unwind

of some £18.0 million from one contract exit in the UK.

The sector performance is detailed in note 1, with the detail of the operational performance of each of our sectors outlined in the CEO report.

EXCEPTIONAL ITEMS

The statutory operating loss was £38.5 million (2014: £36.6 million profit), this includes £74.0

million (2014: £7.1 million) of exceptional items which are included in note 2. Of the net £74.0 million of exceptional items, £74.2 million related to the Procurement business.

CASH FLOWS

2015 2014

£m £m

Adjusting operating profit 54.6 55.8

Adjusting items (93.1) (19.2)

Statutory operating (loss)/profit (38.5) 36.6

Depreciation and amortisation 31.5 26.5

Non-cash items / non-cash exceptional items 76.3 9.3

Share based payments 2.2 2.7

Statutory operating profit less non-cash items 71.5 75.1

(Decrease)/increase in customer cash deposits 0.5 (0.7)

Movement in working capital (23.7) (7.9)

Movement in pensions (3.7) (6.2)

Movement in provisions (6.5) 0.8

Cash generated from operations 38.1 61.1

Dividends to NCI (12.5) (11.2)

Capital expenditure (36.0) (43.4)

Operating Cash flow (10.4) 6.5

Interest (3.9) (1.7)

Tax (4.7) (12.4)

Equity free cash flow from operations (19.0) (7.6)

Acquisitions and disposals (including put options) (12.0) (85.6)

Dividends paid to shareholders (6.8) (6.1)

Other cash flows (0.3) (3.3)

Foreign currency movements (3.4) (3.8)

Movements in net cash in the period (41.5) (106.4)

The decrease in the movement in working capital was due to the exit of a large Procurement contract during the year, resulting in an £18.0 million outflow of working capital.

FY 2015 FY 2014

£m £m

Cash

Xchanging wholly owned entities 96.7 92.8

Xchanging Solutions 11.3 7.8

Enterprise Partnerships 19.5 28.6

127.5 129.2

Xchanging's share of cash

Xchanging wholly owned entities 63.6 58.3

Xchanging Solutions 8.5 5.9

Enterprise Partnerships1 21.4 19.7

Bank and other debt (155.3) (115.5)

Xchanging's share of net cash (61.8) (31.6)

1. The aggregate cash balance in Enterprise Partnerships represents w orking capital and accumulated but unpaid distributions to the shareholders. Xchanging receives cash from Enterprise Partnerships through contractual licence fees and dividends. To provide greater transparency on the amount of cash that is attributable to the shareholders of Xchanging w e show Xchanging’s share of net cash. It takes a prudent view as it makes no attempt to allocate

Xchanging’s share of w orking capital that is held in the Enterprise Partnerships .

CAPITAL EXPENDITURE

The Group reduced its capital expenditure to £36.0 million in 2015 (2014: £46.7 million). Our organic investment programme can be split into three areas:

Product development;

Internal change programme; and

Refresh.

Material projects include CSRP (£8.1 million), Insurance Market Repository (‘IMR’) (£6.1

million), Xuber Enterprise Suite (£4.6 million), and a new SAP finance system (£5.8 million).

We are working closely with Lloyd’s of London to provide support for the CSRP – part of the

wider market modernisation. Our investment in 2015 of £8.1 million in developing this

technology is key to ensuring that we remain at the heart of the London market and contribute strongly to its competitiveness.

ACQUISITIONS

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. Xchanging paid an initial consideration of £3.8 million

in cash with further payments of up to £3.1 million payable in 2015 and 2016, of which £0.4

million is recognised in the purchase price and £2.7 million is subject to certain performance

targets being achieved. Goodwill was initially recognised on the acquisition, however it was

impaired during the second half of the year as part of the broader Procurement sector goodwill impairment.

This table shows the total cash outflow during 2015 and potential future payments for

acquisitions. Note that in the cash flow statement these amounts are presented net of any cash acquired from the business on acquisition.

Date of transaction Total to 31 Dec

2014

Gross pay ments

in 2015

Pay ments in

2015 (net of

cash acquired)

Outstanding

def erred

consideration

Outstanding related

pay ments Total

2016 2016 2017

£m £m £m £m £m £m

Acquisition of AR Enterprise October 2012 17.8 2.3 2.3 - 0.1 - 20.2

Acquisition of MM4 September 2013 13.5 4.9 4.9 - 0.9 - 19.3

Xchanging Italy put option exercise January 2014 4.0 - - - - - 4.0 Inv estment in MachineShop March 2014 0.6 - - - - - 0.6

Businesses acquired f rom Agency port July 2014 63.1 - - - - - 63.1

FdB put option exercise July 2014 10.8 - - - - - 10.8

Acquisition of Total Objects December 2014 18.7 0.8 0.8 0.8 3.0 3.5 26.8 Acquisition of Spikes Cav ell February 2015 - 4.2 4.0 - 1.8 - 6.0

Total 128.5 12.2 12.0 0.8 5.8 3.5 150.8

BORROWING FACILITIES AND COVENANTS

As at 31 December 2015, £155.0 million (2014: £115.0 million) was drawn as cash under the

Group’s credit facility and a further £0.8 million (2014: £0.8 million) was utilised through

guarantees. Refer to note 9 for more information regarding the Group’s borrowing facilities.

As at 31 December the Group was compliant with both of its financial covenants:

As at 31

December

2015

As at 31

December

2014

Metric Test Criteria

Interest cover 11.5x 21.6x Ratio of Xchanging’s share of

EBITDA to net consolidated finance charges

Minimum of 5.0x

Leverage 2.2x 1.8x Ratio of consolidated

borrowings to Xchanging’s share of EBITDA

Maximum of 3.0x

DIVIDENDS

It is a condition of CSC’s offer that no dividend is recommended or paid and so the Board is

not proposing one to shareholders.

Principal risks and uncertainties

The below table gives examples of what we do to manage our principal risks. The Board

considers these to be the most significant risks that could materially affect the Group’s financial

condition, performance, strategies and prospects. The risks listed do not comprise all risks

faced by the Group and are not set out in any order of priority. Additional risks not presently

known to management, or currently deemed to be less material, may also have an adverse effect on the business.

Risk Risk description and potential

Impact Mitigating Actions

Takeover implications

On 9 December 2015, CSC announced a unanimously recommended cash offer for Xchanging at a price of 190 pence per share. The board of Xchanging recommended that Xchanging shareholders accept the offer from CSC for the reasons set out in CSC's offer document, including the significant premium it implies.

The Directors believe that, as a standalone business, Xchanging has a good future. However there are certain benefits of being acquired by a significantly larger organisation with a greater scale of technology and a larger insurance client base. The Directors also view the proposed acquisition as being positive for shareholders and customers.

There is a risk of uncertainty during the period between the announced bid and the pending change of control in terms of employee morale, senior management distraction and the perception of this transaction with clients and prospective clients.

We have been transparent on all aspects of the offer process and are working closely with our employees and our clients. We have put mitigating actions in place where appropriate. The risks of the proposed acquisition not proceeding has also been identified and assessed.

Delivering high quality services and delivery on our financial plans continue to be our top priorities.

Further, should the proposed acquisition not proceed to a conclusion, there could be a further period of uncertainty.

Failure to secure new business from both new and existing customers

We operate in dynamic and competitive markets and, as such, failure to secure new business could result in the slowdown in the replacement of businesses exited during 2015.

This risk materialised in the current period within the Procurement sector. The associated stream of new revenue was slow to gain momentum and significantly lagged behind our expectations.

Over the last two years Software licences have become an increasingly important element of our offerings. The timing of signing of licences is difficult to foresee so our revenue may become less predictable than before.

Investing in innovative products and services for both new and existing customers.

Ability to offer competitive low-cost offshore services.

Market dynamics monitoring and service enhancement.

We have implemented more rigorous sales review and contract governance processes which will help us to focus our resources on the highest quality opportunities. This improves controls over the scrutiny of commercial, legal and delivery risks.

We have implemented more robust account management structures which will help us to increase client satisfaction, to retain clients, and to grow the existing revenue base through the cross selling of other products and services.

Loss of our unique position in the London insurance market

Given our unique position in the London insurance market, we must continue to ensure that we provide a high quality service and invest in the future development of this market. A reduction in our role in this market would have a significant impact on our profitability.

We continue to utilise our significant domain expertise in this area in order to establish ourselves as the leading provider to the market.

Through XIS, our joint venture with Lloyd's and IUA, Xchanging has invested in the Central Services Refresh Programme. This investment specifically provides for the processing of global standard re/insurance accounting and settlement and claims messages to make the London Market and the central services platform more attractive to brokers to place business.

There has also been continued investment in the London Market Insurers Market Repository platform now storing over 50 million customer documents. The XIS joint-venture is actively engaging in the London Market Target Operating Model modernisation programme and was selected by Lloyd's to supply services to the Lloyd's businesses operating in Singapore

using Xchanging's Total Objects insurance software.

A new generation of technology enabled insurance services has been launched with positive customer interest. These services are powered by Xchanging's Total Objects BinderCloud technology and directed at customers' delegated "binding" authority business.

In the Director’s view, following completion of the proposed takeover by CSC, the scale of CSC’s insurance relationships would help to mitigate this risk further.

Failure to utilise and exploit technology-enablement for growth

With the new generation of competitors and products coming on to the market and the onset of digital technology disrupting our chosen markets and our clients’ traditional business models there is a risk that if Xchanging fails to respond to embrace new technologies and deliver innovative products, it will lose relevance and market share.

Injecting technology-enablement into our products and services is core to our growth strategy and we have taken the following steps:

o Making digital enablement an overt

part of every group business IT

strategy;

o Tasking our Group IT & Change

Committee with the role of Digital

leadership across all group

businesses;

o Working to ensure that Xchanging is

at the heart of market modernisation

within the Insurance sector;

o Continuing to Invest in Xuber to

develop a market-leading

technology offering;

o Investing in developing new

offerings and innovative value-

adding customer solutions; and

o Review our existing products and

services to ensure that they meet

our customers’ requirements.

In the Directors’ view, the scale of CSC’s IT capability would help to mitigate this risk further.

Failure to integrate new acquisitions successfully

The Group may be unsuccessful in evaluating material risks involved in completed acquisitions and may be unsuccessful in integrating any acquired operations with its existing businesses.

If material risks are not identified prior to acquisition or the Group experiences difficulties in integrating

Business, legal, tax and financial due diligence carried out prior to acquisition to seek to identify and evaluate material risks and plan the integration process.

Warranties and indemnities included in purchase agreements.

an acquired business, it may not realise the expected benefits from such an acquisition and the Group’s financial condition could be adversely affected.

Board oversight of material acquisitions and review of the integration and performance of recent and prior acquisitions.

Customer concentration in key markets

A concentration of material contracts can lead to a reliance on specific customers, which may result in increased variability and uncertainty in the Group’s results if one of those contracts were to be lost. Partial or full termination of certain customer contracts could result in impairment of goodwill as well as impacting operational performance.

Our commercial risks continue to be well managed through legal review, delegated authorities and contract monitoring processes.

We use dedicated management teams and executive involvement to ensure our performance with all large clients.

We continue to invest in sales to grow our client base, decreasing client concentration and diversifying risk.

Contract management (including contract execution and initial contracting process)

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. It is also dependent upon turning high quality opportunities into deliverable, profitable contracts.

In the Xuber business, success in delivering Xuber licences and sales creates an additional level of risk in implementing the software in new clients.

Failure to meet our customers’ expectations and contractual commitments would have a significant impact upon our reputation and profitability and could result in unexpected and costly litigation.

This risk materialised in the current year within our Procurement sector. Clients decided to reduce contract volumes, gain-share thresholds were not met and there was a weak performance on the traditional BPO contracts. As a result, the ‘Split and Fix’ plan was executed.

Detailed implementation and delivery plans with strong management control and oversight.

Use of experienced employees with strong project, change and people management skills.

Key stakeholder Relations Plan.

Customer Service Review Boards.

The proposed takeover by CSC should give the Xuber business additional flexibility in the provision of resources to support the growing Xuber client base.

Major programme and project reporting has been improved. Projects are monitored using consistent industry-standard reporting metrics, with oversight from the Group Change programme management office.

We have implemented a more rigorous sales review and governance processes which will help us to focus our resources on the highest quality opportunities. This improves controls over the scrutiny of commercial, legal and delivery risks.

Failure to attract, select, develop and retain key personnel

The knowledge, skills and performance of our employees are central to our success. We must attract, develop and retain the talent required to fulfil our ambitions. Inability to retain key knowledge and

Remuneration policies designed to attract, retain and reward appropriate employees.

Talent strategy to provide opportunities for employees to develop careers.

adequately plan for succession could have a negative impact on Company performance.

Our success depends on the ability to attract and retain key talent and it relies on having good relations with colleagues. There is a risk that we are unable to attract and retain key talent, build future leadership capability and maintain the commitment and trust of our employees.

If we face challenges in managing and maintaining our talent pipeline in order to deliver against our strategy, to drive competiveness and maximise on our operating performance, this could impact on our ability to future proof the Group and the associated potential for negative impact on shareholder confidence.

Formalised objective setting in place for employees.

Bonus scheme in place for relevant employees based on business and individual objectives.

Continuing to extend and embed our established talent management framework across the Group in order to engage and empower people whilst delivering results and managing performance.

Assessing our current organisational competence and capability against that required to maximise current and future shareholder value.

Ensuring succession plans are in place for all identified business critical roles, in particular emergency successors for all senior management roles and that these plans are reviewed every six months.

Developed a structured and standard approach to be applied where necessary to key individuals during periods of uncertainty and/or organisational change in order to retain top talent in business critical roles.

Implemented a process to identify and deliver programmes targeted at high potential talent in order to drive competiveness and maximise operating performance.

Driving high performance and engagement through our performance review, development plans and career planning process.

Cyber Attack The increasing digitalization of our business raises the importance of focus on strong information security controls. Information is an essential asset and is vitally important to Xchanging’s business operations and long-term viability.

Xchanging operates in a competitive market and any unauthorised disclosure of data would significantly impact customer confidence, incur financial costs and damage our competiveness.

Commitment from the Board and the Executive Committee in support of key initiatives to ensure all existing and future IT systems are secure by design, that exposure to vulnerability is managed effectively and that user access is sufficiently controlled.

Implementation and continual improvement of a group information security management system to provide assurance that appropriate controls are in place to detect and

Xchanging is committed to maintaining and protecting all of the information in accordance with its value, sensitivity and the risks to which it is exposed, in a manner consistent with all relevant legal, regulatory and contractual requirements.

Inadequate or inefficient security controls could result in the theft, disruption destruction of assets and services. This would have a negative impact on our key stakeholders, associated reputational damage and potential for financial implications.

prevent cyber-attacks and data leakage.

Financial risks 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.

The capital structure of the Group includes bank debt that is subject to leverage and interest cover financial covenants and other representations and warranties commonly associated with corporate bank debt.

Without effective financial controls, we could be exposed to financial losses which may have a significant impact on the ability of the business to operate. We must safeguard business assets and ensure accuracy and reliability of records and financial reporting.

Enhanced budgeting, forecasting and working capital and treasury controls. These controls are being enhanced by increasing the granularity, frequency and intensity of financial performance reviews. They are also being enhanced with the establishment of the new SAP finance system.

A rolling 12 month FX hedging programme which aims to reduce the Group’s in year exposure to FX transaction risk.

Active management of the assets and liabilities in the Group’s defined benefit pension schemes.

Tax controls and processes to manage tax compliance and address changes in tax legislation and tax rates.

Forward looking compliance against financial covenants and warranties is reviewed on a monthly basis for a forward period of at least 12 months.

The capital structure of the Group is reviewed by the Board on a regular basis.

Investment decisions are considered within the context of the impact they will have on the Group’s current and forecast leverage ratio.

The financial reporting process and control system is monitored and maintained through the use of internal control frameworks which address key

financial reporting risks, including risks arising from changes in the business or accounting standards.

The delivery of a centrally co-ordinated assurance programme by the Internal Audit department that includes key business and finance risk areas. The findings and recommendations of each review are reported to both management and the Audit Committee.

Consolidated income statement for the year ended 31 December 2015

2015 2014

Adjusted Adjustments1 Total Adjusted Adjustments1 Total

Note £m £m £m £m £m £m

Revenue 1 440.2 - 440.2 573.5 - 573.5

Net revenue2 400.5 - 400.5 406.8 - 406.8

Gross profit 65.3 (32.6) 32.7 69.3 (27.3) 42.0

Administrative expenses (10.7) (63.2) (73.9) (13.5) (2.2) (15.7)

Other income 2 - 2.7 2.7 - 10.3 10.3

Operating profit/(loss) 1 54.6 (93.1) (38.5) 55.8 (19.2) 36.6

Finance costs (8.4) - (8.4) (5.6) - (5.6)

Finance income 0.9 - 0.9 0.7 0.6 1.3

Share of (loss)/profit from

joint venture (0.2) - (0.2) 0.2 - 0.2

Profit/(loss) before

taxation 46.9 (93.1) (46.2) 51.1 (18.6) 32.5

Taxation 3 (11.6) 5.1 (6.5) (7.6) 4.5 (3.1)

Profit/(loss) for the year 35.3 (88.0) (52.7) 43.5 (14.1) 29.4

Attributable to:

Owners of the parent 21.0 (89.1) (68.1) 28.9 (12.8) 16.1

Non-controlling interests 14.3 1.1 15.4 14.6 (1.3) 13.3

35.3 (88.0) (52.7) 43.5 (14.1) 29.4

Earnings per share attributable to owners of the parent (expressed in pence per share)

Basic earnings per share 4 8.49 (27.55) 11.86 6.62

Diluted earnings per share 4 8.49 (27.55) 11.69 6.52

1. Adjustments in 2015 and 2014 are presented in note 4. 2. Net revenue excludes principal spend on Procurement contracts that arise from suppliers’ costs that are passed

on to the customer.

Consolidated statement of comprehensive income for the year ended 31

December 2015

2015 2014

£m £m

(Loss)/profit for the year (52.7) 29.4

Items that may be reclassified to profit or loss

Revaluation of available-for-sale financial assets 0.1 (0.8)

Fair value movements on hedging instrument qualifying for hedge

accounting (0.4) -

Fair value movements on hedging instrument recycled to the income

statement upon de-designation 0.7 (0.6)

Currency translation differences (2.7) 0.6

Total items that may be reclassified to profit or loss (2.3) (0.8)

Items that will not be reclassified to profit or loss

Actuarial gains/(losses) arising from retirement benefit obligations 1.2 (19.2)

Tax in respect of items that will not be reclassified (0.6) 4.3

Total items that will not be reclassified to profit or loss 0.6 (14.9)

Other comprehensive expense for the year (1.7) (15.7)

Total comprehensive income for the year (54.4) 13.7

Attributable to:

Owners of the parent (69.8) 1.5

Non-controlling interests 15.4 12.2

(54.4) 13.7

Consolidated cash flow statement for the year ended 31 December 2015

2015 2014

Note £m £m

Cash flows from operating activities

Cash generated from operations 12 38.1 61.1

Income tax paid (4.7) (12.4)

Net cash generated from operating activities 33.4 48.7

Cash flows from investing activities

Acquisition cost of subsidiaries net of cash acquired (12.0) (74.9)

Acquisition of equity investment - (0.6)

Purchase of property, plant and equipment (2.4) (8.3)

Proceeds from sale of property, plant and equipment - 4.7

Purchase of intangible assets 7 (33.1) (33.9)

Pre-contract expenditure (0.5) (1.2)

Interest received 0.9 0.8

Net cash used in investing activities (47.1) (113.4)

Cash flows from financing activities

Proceeds from issue of shares 0.2 1.7

Purchase of own shares - (2.4)

Proceeds from borrowings 39.7 114.3

Transaction costs of arranged borrowings (0.4) (2.6)

Interest paid (4.8) (2.5)

Dividends paid to owners of the parent (6.8) (6.1)

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

Acquisition of non-controlling interest in subsidiaries - (14.8)

Net cash generated from financing activities 15.4 76.4

Net increase in cash and cash equivalents 1.7 11.7

Cash and cash equivalents at 1 January 129.2 121.3

Effects of exchange adjustments (3.4) (3.8)

Cash and cash equivalents at 31 December 127.5 129.2

Consolidated balance sheet as at 31 December 2015

2015 2014

Note £m £m

Assets

Non-current assets

Goodwill 6 155.5 209.4

Other intangible assets 7 121.4 123.0

Property, plant and equipment 14.3 17.9

Investment in joint venture and associates 1.1 1.4

Available-for-sale financial assets 2.7 2.6 Trade and other receivables 3.9 6.2

Deferred income tax assets 3 35.9 35.9

Total non-current assets 334.8 396.4

Current assets

Current income tax receivable 0.7 1.2 Borrowings 9 0.8 0.6

Other financial assets 0.9 0.5

Trade and other receivables 97.7 116.6

Cash and cash equivalents 10 127.5 129.2

Total current assets 227.6 248.1

Total assets 562.4 644.5

Liabilities

Current liabilities

Trade and other payables (93.5) (141.0)

Current income tax liabilities (8.9) (4.3)

Borrowings 9 (0.1) (0.2)

Customer accounts (33.0) (34.5)

Other financial liabilities 8 (7.0) (3.2) Provisions 14 (13.8) (18.0)

Total current liabilities (156.3) (201.2)

Non-current liabilities

Trade and other payables (5.5) (2.0)

Borrowings 9 (154.0) (113.8) Other financial liabilities 8 - (0.7)

Deferred income tax liabilities 3 (14.0) (17.5)

Retirement benefit obligations (61.9) (67.4)

Provisions 14 (2.2) (1.9)

Total non-current liabilities (237.6) (203.3)

Total liabilities (393.9) (404.5)

Net assets 168.5 240.0

Equity attributable to owners of the parent

Ordinary shares 12.4 12.2 Share premium 111.0 111.0

Other reserves 47.9 49.6

Retained earnings (29.1) 43.8

Equity attributable to the owners of the parent 142.2 216.6

Non-controlling interest in equity 26.3 23.4

Total equity 168.5 240.0

Consolidated statement of changes in equity for the year ended 31 December

2015 Attributable to owners of the parent

Ordinary shares

Share premium

Other reserves

Retained earnings

Total Non-controlling

interest in equity

Total equity

Note £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 year - - - 16.1 16.1 13.3 29.4

Other comprehensive expense - - (14.6) - (14.6) (1.1) (15.7)

Total comprehensive income

for the year - - (14.6) 16.1 1.5 12.2 13.7

Share-based payments - - - 2.7 2.7 - 2.7

Deferred tax on share-based payments

3 - - - (0.2) (0.2) - (0.2)

Shares issued in respect of employee share-based payments

0.1 0.5 - 1.1 1.7 - 1.7

Purchase of ow n shares - - - (2.4) (2.4) - (2.4)

Subscription for shares by Employee Benefit Trust

- - - (0.3) (0.3) - (0.3)

Transaction w ith non-controlling interest

- - (3.5) 3.7 0.2 (0.2) -

Dividends paid 5 - - - (6.1) (6.1) (11.2) (17.3)

Total transactions with owners, recognised directly in equity

0.1 0.5 (3.5) (1.5) (4.4) (11.4) (15.8)

At 31 December 2014 12.2 111.0 49.6 43.8 216.6 23.4 240.0

(Loss)/profit for the year - - - (68.1) (68.1) 15.4 (52.7)

Other comprehensive expense - - (1.7) - (1.7) - (1.7)

Total comprehensive (expense)/income for the year

- - (1.7) (68.1) (69.8) 15.4 (54.4)

Share-based payments - - - 2.2 2.2 - 2.2

Deferred tax on share-based payments

3 - - - - - - -

Shares issued in respect of employee share-based payments

0.2 - - - 0.2 - 0.2

Purchase of ow n shares - - - - - - -

Subscription for shares by Employee Benefit Trust

- - - (0.2) (0.2) - (0.2)

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

Total transactions with owners, recognised directly in equity

5 0.2 - - (4.8) (4.6) (12.5) (17.1)

At 31 December 2015 12.4 111.0 47.9 (29.1) 142.2 26.3 168.5

Notes to the consolidated financial statements for the year ended

31 December 2015

The preliminary announcement for the full year ended 31 December 2015 has been prepared

in accordance with the accounting policies as disclosed in Xchanging plc's 2014 Annual

Report, as updated to take effect of any new accounting standards applicable for 2015 as set out in Xchanging plc's 2015 Half Year Report.

The annual financial information presented in this preliminary announcement for the year

ended 31 December 2015 is based on, and is consistent with, that in the Group's audited

financial statements for the year ended 31 December 2015, and those financial statements

will be delivered to the Registrar of Companies following the Company's Annual General

Meeting. The independent auditors' report on those financial statements is unqualified and

does not contain any statement under section 498 (2) or 498 (3) of the Companies Act 2006.

The Group financial statements and this preliminary announcement were approved by the Board of Directors on 25 February 2016.

Information in this preliminary announcement does not constitute statutory accounts of the

Group within the meaning of section 434 of the Companies Act 2006. The full financial

statements for the Group for the year ended 31 December 2014 have been delivered to the

Registrar of Companies. The independent auditor's report on those financial statements was

unqualified and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006.

1 SEGMENTAL ANALYSIS

Management has determined the operating segments based on the internal reporting and

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.

During 2015, the Board considered the business as follows:

Business Processing Services that has two distinct components, Insurance and Financial Services. Insurance Services provides technology infrastructure and managed services for 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 provides technology infrastructure management services, insurance software and application management services to a range of customers.

Procurement provides procurement and human resources services to a range of customers. The Procurement segment in the final quarter of the 2015 financial year has been split into two sections for internal reporting; Business Processing Services – Procurement and Technology – Procurement. This change has been in response to the July 2015 interim statements and external shareholder communication. For transparency and in line with the aggregation criteria, the Procurement segment has continued to be shown as a separate segment. For comparative purposes and consistency with management reporting the key performance measure, net revenue has been split for the segment for 2015 by Business Processing Services – Procurement and Technology – Procurement.

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 numbers are presented in order to reconcile

reportable segment numbers back to the consolidated 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. The segment information for the year ended 31 December 2015 is as follows:

Subtotal

Insurance

Services

Financial

Services

Business

Processing

Services Technology Procurement Corporate Total

Year ended 31

December 2015 £m £m £m £m £m £m £m

Revenue 177.1 85.1 262.2 113.6 64.4 - 440.2

Net revenue 177.1 85.1 262.2 113.6 24.7 - 400.5

Adjusted operating

profit/(loss) 53.2 7.8 61.0 14.5 (10.9) (10.0) 54.6

Adjusted operating profit

margin 30.0% 9.2% 23.3% 12.8% (44.1%) - 13.6%

For future comparability purposes the Procurement segment net revenue of £24.7 million will be split post the year end 31 December 2015 with £8.1 million, relating to Business Processing Services and £16.6 million to Technology.

The segment information for the year ended 31 December 2014 is as follows:

Subtotal

Insurance

Services

Financial

Services

Business

Processing

Services Technology Procurement Corporate Total Year ended 31 December

2014 £m £m £m £m £m £m £m

Revenue 182.7 99.7 282.4 93.1 198.0 - 573.5

Net revenue 182.7 99.7 282.4 93.1 31.3 - 406.8 Adjusted operating

profit/(loss) 53.3 10.8 64.1 6.8 (2.5) (12.6) 55.8

Adjusted operating profit margin 29.2% 10.8% 22.7% 7.3% (8.0%) - 13.7%

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

Subtotal

Insurance

Services

Financial

Services

Business

Processing

Services

Technology Procurement Corporate Total

Year ended 31 December 2015 £m £m £m £m £m £m £m

Depreciation and amortisation 2015 6.4 3.6 10.0 11.8 3.3 0.1 25.2

Depreciation and amortisation 2014 2.8 5.1 7.9 8.2 2.8 1.5 20.4

Reconciliation of non-GAAP adjusted operating profit to IFRS statutory operating

(loss)/profit:

2015 2014

£m £m

Adjusted operating profit 54.6 55.8

Adjusting items:

Amortisation of intangible assets previously unrecognised by an acquired entity (all recognised in gross

profit) (6.5) (6.1)

Acquisition-related expenses 1 (12.6) (6.0)

Exceptional items (74.0) (7.1)

Operating (loss)/profit (38.5) 36.6

Net finance costs (7.5) (4.3)

Share of profit from joint venture (0.2) 0.2

Taxation (6.5) (3.1)

(Loss)/profit for the year (52.7) 29.4

1. Acquisition-related expenses refer to note 15.

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

2015 2014

Revenue by geographical location £m £m

United Kingdom 254.4 387.6

Germany 52.4 53.7

United States of America 44.4 32.1

Australia 28.3 37.6

Other Continental Europe 22.2 20.7

Italy 19.8 23.4

South East Asia 10.4 8.0

Rest of world 6.6 7.7

India 1.7 2.7

Revenue 440.2 573.5

2015 2014

Analysis of revenue by category £m £m

Revenue from services 407.1 547.1

Sale of goods 11.8 18.2

Revenue from sale of software licences 21.3 8.2

Revenue 440.2 573.5

Material customers

No one customer accounted for greater than ten per cent of the Group’s gross revenues for

the year ended 31 December 2015. In the year end 31 December 2014 revenues of £168.3

million, attributable to the Procurement segment, were derived from one customer. It was the

revenue derived and costs incurred from this single customer that contributed to the higher

2014 revenue and cost of sales balances seen above.

No customers accounted for greater than ten per cent of the Group’s net revenues.

Information about product/service

The information to report revenue by individual product/service was not available for this

period, although the group has invested in new finance systems which will enable such

reporting in the future.

2 EXCEPTIONAL ITEMS

2015 2014

£m £m

Exceptional (cost)/income items comprise the following:

Impairment of Procurement goodwill (59.3) -

Procurement asset impairments (5.6) -

Restructuring costs (‘Split and Fix’ in 2015, Group wide restructuring in 2014) (4.0) (10.3)

Procurement onerous contract provision (2.9) -

Procurement customer contract asset impairment (2.4) -

Other intangibles asset impairments (2.9) -

New South Wales workers’ compensation contract 0.4 (7.1)

Lease surrender receipt and related items - 9.7

Pension curtailment 2.7 -

Insolvency trustee distribution - 0.6

Total exceptional items (74.0) (7.1)

Included within:

- Gross profit (17.4) (17.4)

- Administrative expenses (59.3) -

- Other income 2.7 10.3

(74.0) (7.1)

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. These may include items relating to the restructuring of a

significant part of the Group, impairment charges, items relating to acquisitions and disposals,

and other one-off events or transactions. The tax impact of the total exceptional cost is a credit of £3.1 million (2014: credit £2.6 million).

For 2015, the Procurement sector exceptional items of £74.2 million are:

Impairment of the Procurement sector goodwill of £59.3 million (refer to note 6).

Procurement asset impairments £5.6 million. This is for the MM4 software of £2.3 million, Logia £1.4 million, Vault £0.6 million and £1.3 million of assets associated with the onerous contract recognised at the half year (see below).

Restructuring costs of £4.0 million incurred across the Group for ‘Split and Fix’. £1.9 million was specifically recognised with regards to the French operations which are in the process of being terminated.

Procurement onerous contracts provision of £2.9 million. This relates to two specific contracts within the Procurement sector, one of which was provided for at the half year 2015. This expense is shown net of termination benefits received of £1.4 million in respect of the second contract.

Procurement customer contract asset impairments of £2.4 million (refer to note 7) in relation to the MM4 business.

Exceptional items non-Procurement sector of £(0.2) million are:

Impairment of the Netsett asset of £2.9 million (refer to note 7).

£0.4 million reversal of the New South Wales workers’ compensation onerous contract provision (refer to note 14).

The London Processing Centre Ltd Retirement & Death Benefits Scheme (the ‘LPC Scheme’), effective from 28 February 2015 and Xchanging Defined Benefit Scheme, effective from 31 December 2015 was closed to future accrual, resulting in a net curtailment income of £2.7 million.

3 TAXATION

The tax expense for the period comprises current and deferred tax. Tax is recognised in the

income statement, except to the extent that it relates to items recognised in other

comprehensive income or directly in equity. In this case, the associated tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or

substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income.

Deferred income tax is recognised, using the liability method, on temporary differences arising

between the tax bases of assets and liabilities and their carrying amounts in the consolidated

financial statements. It is also recognised on temporary differences arising in subsidiaries. However, deferred tax is not recognised when:

It relates to the initial recognition of goodwill.

It relates to the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

It relates to a deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

It is not probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is determined using tax rates (and laws) that have been enacted or

substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right

to offset current tax assets against current tax liabilities and when the deferred income tax

assets and liabilities relate to income taxes levied by the same taxation authority on either the

same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Income tax

The major components of income tax expense for the years ended 31 December 2015 and 2014:

2015 2014

Consolidated income statement £m £m

Current tax:

- Current tax on profits for the year 10.5 7.5

- Adjustment in respect of prior years 0.3 (0.7)

Total current tax 10.8 6.8

Deferred tax:

- Origination and reversal of temporary differences for the year (4.9) (3.5)

- Adjustment in respect of prior years (0.8) (0.2)

- Impact of the change in the UK tax rate 1.4 -

Total deferred tax (4.3) (3.7)

Tax charge for the year 6.5 3.1

2015 2014

Consolidated statement of comprehensive income £m £m

Current tax movement in relation to actuarial losses on defined benefit plans 0.2 0.3

Deferred tax movement in relation to actuarial (gains)/losses on defined benefit plans (0.8) 4.0

(0.6) 4.3

2015 2014

Consolidated statement of changes in equity £m £m

Deferred tax movement in relation to share-based payments - (0.2)

Factors affecting the tax charge for the year

The statutory tax charge for the year is higher (2014: lower) than the standard rate of

corporation tax in the UK. The standard rate of corporation tax in the UK changed from 21%

to 20% with effect from 1 April 2015. Accordingly, the Group’s profits for this accounting period are taxed at a blended rate of 20.25% (2014: 21.50%). The differences are explained below:

2015 2014

£m £m

(Loss)/profit before taxation (46.2) 32.5 (Loss)/profit before tax multiplied by the standard rate of corporation tax in the UK of 20.25% (2014: 21.5%) (9.4) 7.0

Changes in tax rates 1.4 -

Items not deductible for tax purposes 14.8 1.5

Unutilised tax losses in current year 0.3 0.1

Temporary differences not previously recognised - (0.7)

Adjustments for tax in respect of prior years (0.5) (0.9)

Non-taxable income (0.9) (1.1)

Brought forward losses not previously recognised (0.1) (3.0)

Difference on foreign tax rates 0.9 0.2

Tax charge for the year reported in the income statement 6.5 3.1

Deferred tax

The Finance (No 2) Act 2015, that was substantively enacted on 18 November 2015, reduced

the standard rate of corporation tax in the UK from 20% to 19% with effect from 1 April 2017

and then from 19% to 18% with effect from 1 April 2020. Accordingly deferred tax is calculated

in full on temporary differences under the liability method using the tax rate arising when the

temporary difference is expected to reverse in the UK and at the relevant local statutory rates

for differences arising in other countries.

Deferred income tax assets and liabilities are attributable to the following items:

Consolidated balance sheet Consolidated income statement

2015 2014 2015 2014

£m £m £m £m

Deferred tax assets

Retirement benefit obligation 11.3 13.3 (1.2) (0.4)

Tax losses 10.0 7.3 3.2 2.7

Decelerated tax depreciation 4.0 4.2 (0.1) -

Share-based payments 1.5 1.6 (0.1) 0.1

Other 9.1 9.5 2.5 1.3

Total deferred tax assets 35.9 35.9

Recoverable within 1 year 10.6 9.2

Recoverable after more than 1 year 25.3 26.7

35.9 35.9

Deferred tax liabilities

Accelerated tax depreciation (0.1) (0.1)

Other1 (13.9) (17.4)

Total deferred tax liabilities (14.0) (17.5)

Arising within 1 year (5.7) (7.4)

Arising after more than 1 year (8.3) (10.1)

(14.0) (17.5)

Net deferred tax asset 21.9 18.4

Net credit to tax expense 4.3 3.7

1. Included w ithin other is deferred tax on amortisation of intangible assets and other miscellaneous items.

Tax losses arising in the current and previous years from continuing operations, total an

estimated carried forward amount of £52.9 million in the USA (2014: £46.8 million), £12.6

million in Italy (2014: £15.0 million), £8.6 million in the UK (2014: £0.9 million) and £8.3 million

in other tax jurisdictions (2014: £5.0 million). USA losses expire 20 years from the year in

which they arise. Losses arising in Italy and the UK can be carried forward indefinitely. The

principal deferred tax assets recognised for losses are £5.0 million (2014: £3.0 million) in

respect of the USA, £3.2 million (2014: £4.1 million) in respect of Italy and £1.7 million (2014

£0.2 million) in respect of the UK. The Group has not recognised deferred tax assets of £16.0

million (2014: £14.7 million) that principally arise on losses in certain businesses in the USA.

The utilisation of these losses will be reviewed in line with future tax planning opportunities on an ongoing basis.

4 EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the profit attributable to owners of the parent

by the weighted average number of ordinary shares of the Company.

For diluted earnings per share, the weighted average number of ordinary shares in existence

is adjusted to include all potential dilutive ordinary shares. The Group has three types of

potential dilutive ordinary shares: share options, share awards under the Performance Share

Plan and other share awards.

Weighted average number

of shares Adjusted earnings

Adjusted earnings

per share Statutory earnings

Statutory earnings

per share thousands £m pence £m pence

Basic earnings per share: - 31 December 2015 247,010 21.0 8.49 (68.1) (27.55) - 31 December 2014 243,482 28.9 11.86 16.1 6.62 Diluted earnings per share: - 31 December 2015 247,010 21.0 8.49 (68.1) (27.55)

- 31 December 2014 247,155 28.9 11.69 16.1 6.52

The following reflects the share data used in the basic and diluted earnings per share

calculations:

2015 2014

Thousands Thousands

Weighted average number of ordinary shares for basic earnings per share 247,010 243,482

Dilutive potential ordinary shares:

- Employee share options - 304

- Awards under the Performance Share Plan - 3,336

- Share awards - 33

Weighted average number of ordinary shares for diluted earnings per share 247,010 247,155

The share awards during the year have not diluted the weighted average number of ordinary shares for diluted earnings per share.

Adjusted basic and diluted earnings per share

Adjusted earnings per share values are disclosed to provide a better understanding of the

underlying trading performance of the Group. The adjusted value is in line with the KPIs as

used to measure the Group’s performance in 2015.

The adjusted earnings per share figures are calculated based on the Company’s share of

adjusted profit for the year, divided by the basic and diluted weighted average number of

shares as stated above.

The owners of the parent’s share of adjusted profit for the year is calculated as follows:

2015 2014

£m £m

Profit for the year net of tax attributable to owners of the parent (68.1) 16.1

Exceptional items 74.0 7.1

Acquisition-related expenses 12.6 6.0

Amortisation of intangible assets previously unrecognised by an acquired entity 6.5 6.1

Imputed interest and fair value adjustments on put options - (0.6)

Non-controlling interests’ share of adjustments 1.1 (1.3)

Tax on adjusting items (5.1) (4.5)

Adjusted profit for the year net of tax attributable to owners of the parent 21.0 28.9

5 DIVIDENDS PAYABLE

Dividend distributions to the Company’s shareholders are recognised as a liability in the

Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

No dividend has been declared for the year ended 31 December 2015. A dividend of 2.75

pence per share in respect of the year ended 31 December 2014, amounting to a total dividend

of £6,804,085, was paid on 22 May 2015 and is recorded in these financial statements.

6 GOODWILL

Goodwill arises from the purchase of subsidiary undertakings and represents the excess of

the fair value of the consideration paid over the fair value of the Group’s interest in net

identifiable assets of the acquiree and the fair value of the non-controlling interest in the

acquiree. After initial recognition, goodwill is stated at cost less any accumulated impairment losses.

Goodwill is allocated to the Group’s cash generating units (‘CGUs’) being the lowest level at

which assets generate separately identifiable cash inflows independent of the cash inflows of

other assets or groups of assets.

Goodwill impairment reviews are undertaken annually or, more frequently if events or changes

in circumstances indicate a potential impairment. The carrying value of goodwill is compared

to the recoverable amount, which is the higher of value-in-use and the fair value less costs to

sell. Any impairment would be recognised immediately as an expense and would not be subsequently reversed.

Note 2015

£m 2014

£m

Cost

At 1 January 310.2 269.2

Business combination 15 5.4 38.4

Exchange adjustments (0.4) 2.6

At 31 December 315.2 310.2

Aggregate impairment

At 1 January (100.8) (98.6)

Impairment charge1 2 (59.3) -

Exchange adjustments 0.4 (2.2)

At 31 December (159.7) (100.8)

Net book amount

At 31 December 155.5 209.4

1. The impairment charge of £59.3 million is recognised in the income statement w ithin adjusting administrative expenses.

An analysis of goodwill and adjusted operating profit by operating segment is as follows:

Goodwill

Adjusted operating

profit

2014 Business

combination Disposal/re

allocation Impairment

charge Foreign currency

movements 2015 2015 2014

£m £m £m

£m £m £m £m

Insurance Services 36.1 - - -

(0.1) 36.0 53.2 53.3

Financial Services 40.1 - - - (1.5) 38.6 7.8 10.8

Business Processing Services

76.2 - - - (1.6) 74.6 61.0 64.1

Technology 79.1 0.8 - - 1.0 80.9 14.5 6.8

Procurement 54.1 4.6 - (59.3)

0.6 - (10.9) (2.5)

209.4 5.4 - (59.3)

- 155.5 64.6 68.4

Impairment testing of goodwill

The key assumptions applied in the impairment testing of goodwill as at 31 December 2015

are set out in the table below. All margins are calculated using net revenue and adjusted

operating profit.

Operating

margin range

Weighted

average

margin

Operating

margin

growth rate

Extrapolated

future

growth rate

Pre-tax

discount

rate

Insurance Services 30%-33% 32% 2% 1% 15%

Financial Services 6%-9% 8% (3%) 1% 14%

Technology 13%-14% 14% 2% 1% 13%

The assumptions used in the Procurement value-in-use calculations gave an operating margin

loss of 11%-44%, and hence a negative value-in-use for the sector resulting in the full carrying

value of the Procurement sector goodwill being impaired.

The recoverable amounts of all CGUs have been determined based on value-in-use

calculations using pre-tax cash flow projections based on budgets approved by the

management of the CGU and the Board. The budgets cover a one year period, as well as

cash flows for years two, three and four using management’s expectations of sales growth,

operating costs, adjusted operating profit and margin based on past experience, and

expectations regarding future performance and profitability for each individual CGU. Financial

Services value-in-use calculation has been prepared based on budgets covering a two year

period as well as cash flows for years three and four using management’s expectations as

above due to the ongoing projects within the sector.

A terminal value has been calculated using a nil growth rate assumption for all CGUs.

Sensitivity analysis

The carrying value of goodwill is most sensitive to changes in average growth rates as

described below.

Insurance Services

This sector is consistently profitable and cash generative. It is considered unlikely that there

could be reasonable changes to key assumptions sufficient to give rise to an impairment at an individual CGU level.

Financial Services

The acquisition of AGI’s holding in Fondsdepot Bank during 2014 has reduced some risk within

FdB. Additionally the current digitalisation project and restructuring of the business has

positively impacted the future cash flows within the model. Albeit, there is a lag between

recognising the costs of these projects and realising the benefits and hence the initial negative

growth of the operating margin shown in the table above.

The performance of Xchanging Italy has remained level during 2015, following the successful

merger of Kedrios and AR Enterprise S.r.l. in 2013, and the realisation of synergies within the

combined business.

Sensitivities have been performed in conjunction with the sales targets and cost reduction set

out within the 2016 budget business plan, should these not be reached sufficient headroom

would remain.

Technology

The acquisition of the businesses acquired from Agencyport and Total Objects Ltd during 2014

has increased the customer base and product offering of the insurance software business. A

number of new Xuber contracts were secured during the year and further new contracts are

in the pipeline for 2016. It is considered unlikely that there could be reasonable changes to key assumptions sufficient to give rise to an impairment.

Procurement

The weak performance of the traditional outsourcing business combined with

underperformance of a number of procurement contracts lead to an impairment charge of

£59.3 million being recognised during the period for the Procurement CGU.

7 OTHER INTANGIBLE ASSETS

Research and development

Research expenditure is expensed as incurred. Development expenditure is capitalised when

it can be reliably measured, technically feasible, the resources are available to complete the

project, there is an ability to use or sell the asset and the future economic benefits are

expected.

Assets in the course of development are not amortised until they are ready to be used or sold.

These assets relate to software being developed by the Group.

Development costs represent the cost of process and system designs that substantially

improved the business. Once capitalised these assets are amortised and assessed for impairment in accordance with IAS 38 ‘Intangible Assets’.

Software costs and contractual customer relationships

Software assets acquired as part of a business combination are fair valued on acquisition in

accordance with IFRS 3, ‘Business Combinations’ then subsequently amortised in accordance

with IAS 38 ‘Intangible Assets’. Contractual customer relationships are capitalised on

acquisition where they meet the criteria for recognition under IFRS 3, ‘Business Combinations’, and IAS 38 ‘Intangible Assets’.

Amortisation is calculated so as to write off the cost of the assets, less their estimated residual

values, on a straight-line basis over the expected useful economic lives of the assets concerned. Amortisation is calculated over the following periods:

Software 3 to 7 years

Development costs 5 years or over the life of the related contract Customer contractual relationships 5 to 10 years

Software

Customer contractual

relationships

Software assets in the

course of development

Development costs

Total

£m £m £m £m £m

Cost

At 1 January 2014 61.1 37.1 1.5 14.3 114.0

Business combination (note 15) 15.6 37.0 - - 52.6

Additions – internal 6.8 - 14.3 - 21.1

Additions – external 8.9 - 6.8 - 15.7 Transfers from property, plant and equipment - - 2.1 -

2.1

Transfer to / (from) assets in the course of development 1.5 - (1.5) -

-

Disposals/write-offs (3.3) - (4.1) - (7.4)

Exchange adjustments (1.8) (1.0) (0.1) - (2.9)

At 31 December 2014 88.8 73.1 19.0 14.3 195.2

Business combination (note 15) - - - - -

Additions – internal 6.2 - 6.4 - 12.6

Additions - external 3.0 - 17.4 - 20.4 Transfer to/(from) assets in the course of development 1.6 - (1.6) -

-

Disposals/write-offs (12.7) - - -

(12.7)

Exchange adjustments (1.6) (1.2) - - (2.8)

At 31 December 2015 85.3 71.9 41.2 14.3 212.7

Accumulated amortisation

At 1 January 2014 24.3 20.0 - 13.7 58.0

Charge for the year 12.9 6.1 - 0.2

19.2

Disposals/write-offs (3.1) - - - (3.1)

Exchange adjustments (1.4) (0.5) - - (1.9)

At 31 December 2014 32.7 25.6 - 13.9 72.2

Charge for the year 17.2 6.5 - 0.2 23.9

Impairment charge for the year 8.5 2.4 - - 10.9

Disposals/write-offs (12.7) - - - (12.7)

Exchange adjustments (2.3) (0.7) - - (3.0)

At 31 December 2015 43.4 33.8 - 14.1 91.3

Net book amount

At 1 January 2014 36.8 17.1 1.5 0.6

56.0

At 31 December 2014 56.1 47.5 19.0 0.4

123.0

At 31 December 2015 41.9 38.1 41.2 0.2

121.4

Amortisation expense of £23.9 million (2014: £19.2 million) has been charged through gross profit and £nil (2014: £nil) through administrative expenses.

In 2015, all of the customer contractual relationship amortisation charge of £6.5 million (2014: £6.1 million) relates to assets previously unrecognised by an acquired entity.

Significant individual assets, which are included in the balances above, are as follows:

Intangible assets impaired during the year

During the year the assets relating to the Procurement business were assessed for impairment given the Procurement goodwill write-off and the ‘Split and Fix’ restructuring plan. As a result of this assessment £5.6 million of Procurement assets were impaired as they were no longer needed to support the Procurement business. This is for the MM4 software of £2.3 million, the Logia IT platform of £1.4 million, the Vault IT platform of £0.6 million and £1.3 million of assets associated with the onerous contract recognised at the half year.

£2.4 million of MM4 customer contracts assets were impaired during the year due to the business not achieving the levels of growth expected.

Netsett is the Group’s internally generated, global (re)insurance and accounting net settlement service. It is a netting and settlement solution designed to deliver operational efficiency, transparency, and capital efficiency benefits to participants through the implementation of a centralised, multi-lateral, multi-currency engine platform for premium and claims flows within and between global cedents, brokers and carriers. The asset was completed in 2014 and has a carrying amount as at 31 December 2015 of £2.9 million (2014: £4.0 million). Impairment testing has been performed and a conclusion was reached to impair the remaining book value, £2.9 million. This assessment was reached because, despite the potential for the service to be a significant revenue generator in the long term, there is insufficient certainty of the timing and quantum of cash inflows at present.

Software

The significant software assets have been described below:

Xuber Enterprise Suite is the Group’s global insurance application platform, and provides support for the full insurance cycle including quotation, claim notification as well as payment and settlement. The asset has a carrying amount as at 31 December 2015 of £22.7 million (2014: £24.0 million) and is made up of several components. Components are amortised over five years after they are complete.

Insurance software acquired with the businesses acquired from Agencyport relating to the ‘OPENSuite’ of products. The asset has a carrying amount as at 31 December 2015 of £11.5 million, and is being amortised to 2020.

Insurance software acquired with Total Objects which provides services to Insurance brokers, Reinsurers and managing general agents. The asset has a carrying amount as at 31 December 2015 of £2.2 million, and is being amortised to 2021.

Funds administration processing platforms, including costs of migration of new customers on to the platform. The asset has a carrying amount as at 31 December 2015 of £6.1 million (2014: £1.3 million), and is made up of several components being amortised up to 2019.

IT platform and software acquired with AR relates to a comprehensive information technology (IT) solution for the securities brokerage and asset management industry in Italy. The asset has a carrying amount as at 31 December 2015 of £1.1 million (2014: £2.0 million), and is being amortised to 2017.

Workday is the Group’s new HR system that supports HR services including payroll processes, talent and performance management, and organisational changes. The asset has a carrying value as at 31 December 2015 of £3.3 million (2014: £3.9 million), and is being amortised to 2019.

The Finance Transformation Programme (‘FTP’) delivers a common SAP platform, a common set of finance business processes, within a common organisation structure aligned with the new global finance shared service model. The asset has a carrying value as at 31 December 2015 of £9.2 million, and will be amortised over a 5 year period from the date it is brought into use (January 2016).

Within the Insurance sector there is a new software in development to enable the XIS bureau to process messages under the ACCORD global standard for Insurance premium messages, as part of the London Insurance Market’s Central Services Refresh Programme (‘CSRP’). This asset has a carrying amount at 31 December 2015 of £8.1 million.

The Insurance Market Repository (IMR) software under construction is an investment in replacing, upgrading and introducing new IT applications and infrastructure. This is part of the group’s Platform Refresh Programme. This asset has a carrying amount at 31 December 2015 of £6.1 million.

Customer contractual relationships

Contractual relationships acquired as part of the acquisition of the businesses acquired from Agencyport. These assets have a carrying amount at 31 December 2015 of £27.3 million (2014: £30.5 million) and are being amortised to 2023.

Contractual relationships acquired as part of the acquisition of Total Objects. These assets have a carrying amount at 31 December 2015 of £3.0 million (2014: £3.8 million) and are being amortised to 2019.

Open architecture customer contracts relating to investment fund administration. The asset has a carrying amount as at 31 December 2015 of £3.6 million (2014: £4.8 million) and are being amortised to 2019.

Brokerage and Asset management customers acquired as part of the acquisition of AR Enterprise in 2012. These assets have a carrying amount of £4.2 million as at 31 December 2015 (2014: £5.1 million) and are being amortised to 2022.

8 OTHER FINANCIAL LIABILITIES

2015 2014

£m £m

Current other financial liabilities

Deferred consideration 6.0 3.2

Derivative cash flow hedge 1.0 -

Total current other financial liabilities 7.0 3.2

Non-current other financial liabilities

Deferred consideration - 0.7

Total non-current other financial liabilities - 0.7

The carrying amounts of the Group’s other financial liabilities are denominated in the following currencies:

2015 2014

£m £m

Sterling 3.8 1.5

US Dollars 2.4 -

Euros 0.8 2.4

7.0 3.9

Deferred consideration

2015 2014

£m £m

Current deferred consideration

Total Objects 3.8 0.8

Spikes Cavell 1.2 -

MM4 0.9 -

AR Enterprises S.r.l. 0.1 2.4

Total current deferred consideration 6.0 3.2

Non-current deferred consideration

Total Objects Ltd - 0.7

Total non-current deferred consideration - 0.7

The outstanding balances comprise fixed deferred consideration and contingent deferred

consideration. Contingent deferred consideration is treated as post-acquisition remuneration

and has been included in this table for completeness.

9 BORROWINGS

2015 2014

£m £m

Current borrowings

Presented in current assets:

- Unamortised loan fees (0.8) (0.6)

Presented in current liabilities:

- Finance lease liabilities 0.1 0.2

Total current borrowings (0.7) (0.4)

Non-current borrowings

Bank loans and revolving credit facilities 155.0 115.0

Unamortised loan fees (1.2) (1.5)

Finance lease liabilities 0.2 0.3

Total non-current borrowings 154.0 113.8

The carrying amounts of the Group’s borrowings are denominated in the following currencies:

2015 2014

£m £m

Sterling 153.0 113.1

Indian Rupees 0.3 0.3

153.3 113.4

Bank loans and revolving credit facilities

The Group maintains committed credit facilities to ensure that it has sufficient liquidity to

maintain its ongoing operations. The Group sources its debt funding in the UK through a

revolving credit facility that is provided by a syndicate of banks.

In 2015 the Group increased the aggregate size of its revolving credit facility by £25.0 million

to £190.0 million. The margin payable on funds drawn under the facility is set at a range

between 200 and 350 basis points depending on the prevailing leverage ratio. Security is

provided in the form of a subsidiary cross guarantee arrangement and the facility is subject to

leverage and interest cover financial covenants. It also contains representations and

warranties commonly associated with corporate bank debt.

£155.0 million was drawn as cash under the facility as at 31 December 2015 (2014: £115.0)

and a further £0.8 million (2014: £0.8 million) was utilised through guarantees. At the year end

date the Group had £34.2 million (2014: £49.2 million) of committed headroom available.

In addition to this facility, a working capital facility of INR330.0 million (£3.4 million) is provided

to Xchanging Technology Services India Private Limited (‘XTSI’), a wholly owned subsidiary

of the Group. The facility is secured by way of a charge on the current assets of XTSI and is

subject to a corporate guarantee. The working capital facility is uncommitted and renewed on

an annual basis. As at 31 December 2015, the cash amount drawn under the facility was £nil

(2014: £nil).

The Group has a £10.0 million (2014: £10.0 million) uncommitted overdraft facility linked to its

UK notional cash pooling arrangement.

The Group has the following undrawn committed and uncommitted borrowing facilities available:

2015 £m

2014 £m

Expiring within one year 13.2 13.1 Expiring later than two years but not more than five years 34.2 51.1

47.4 64.2

The fair value of the Group’s debt is assumed to be equal to its carrying value as all drawn

debt is subject to floating rate interest.

Finance leases

The finance leases held by the Group relate to leased assets including computer equipment and other items classified as fixtures and fittings.

The gross finance lease obligation and present value of finance lease liabilities are as follows:

2015 2014

£m £m

Expiring within one year 0.1 0.2

Expiring later than one year but not more than five years 0.2 0.3

Gross finance lease obligation 0.3 0.5

Present value of future finance leases 0.3 0.5

10 CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash in hand, demand deposits, short-term highly liquid

investments that are readily convertible to cash and are subject to minimal risk of changes in value.

2015 2014

£m £m

Cash at bank and in hand – held in Enterprise Partnerships 18.7 23.5

Cash at bank and in hand – held in Xchanging Solutions 5.4 2.8

Cash at bank and in hand – held in wholly owned subsidiaries 80.0 89.8

Cash at bank and in hand 104.1 116.1

Short-term deposits – held in Enterprise Partnerships 0.8 5.1

Short-term deposits – held in Xchanging Solutions 5.9 5.0

Short-term deposits – held in wholly owned subsidiaries 16.7 3.0

Cash and cash equivalents 127.5 129.2

Xchanging receives cash from Enterprise Partnerships through contractual licence fees and

dividends. At 31 December 2015 a total of £6.2 million (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 £15.2 million (2014: £13.2 million) of profit earned in 2015 will be distributed to Xchanging in 2016.

Included in the cash balance held by wholly owned subsidiaries are £33.0 million (2014: £34.5

million) of customer cash deposits held at Fondsdepot Bank. An equal customer cash

accounts liability is recognised on the balance sheet.

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

guarantees.

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

11 NET CASH

The consolidated movement in net cash for the year is:

2015 2014

£m £m

Increase in cash and cash equivalents in the year 1.7 11.7

Movement in bank loans and revolving credit facilities (40.0) (115.0)

Movement on finance lease liabilities and other debt 0.2 0.7

Change in net cash resulting from cash flows (38.1) (102.6)

Exchange movements (3.4) (3.8)

Movement in net cash in the year (41.5) (106.4)

Net cash at the beginning of the year 13.7 120.1

Net cash at the end of the year (27.8) 13.7

Movement in net cash

Cash and cash

equivalents

Bank loans and revolving credit

facilities

Finance lease

liabilities

Total

£m £m £m £m

1 January 2014 121.3 - (1.2) 120.1

Cash flow 8.4 (115.0) 0.7 (105.9)

Cash acquired 3.3 - - 3.3

Exchange movements (3.8) - - (3.8)

31 December 2014 129.2 (115.0) (0.5) 13.7

Cash flow 1.8 (40.0) 0.2 (38.0)

Cash acquired (0.1) - - (0.1)

Exchange movements (3.4) - - (3.4)

31 December 2015 127.5 (155.0) (0.3) (27.8)

12 CASH GENERATED FROM OPERATIONS

2015 2014

Note £m £m

(Loss)/profit before tax (46.2) 32.5

Net finance income 7.5 4.3

Loss/(profit) from joint venture 0.2 (0.2)

Operating (loss)/profit (38.5) 36.6

Adjustment for non-cash items:

- employee share-based payment 2.2 2.7

- depreciation on PP&E 5.9 5.9

- amortisation of other intangibles 23.9 19.2

- amortisation of pre-contract costs 1.7 1.4

- profit on disposal of property, plant and equipment - (0.5)

- New South Wales workers’ compensation contract (0.4) 7.1

- expense relating to the total amount payable to the sellers of MM4 15 3.0 2.7

- expense relating to the total amount payable to the sellers of Total

Objects 15 3.0 -

- expense relating to the total amount payable to the sellers of Spikes Cavell

15 1.2 -

- pension curtailment 2 (2.7) -

- other non-cash items1 72.3 -

110.1 75.1

Changes in working capital (excluding the effects of business

combinations):

- decrease in trade and other receivables 16.1 18.8

- decrease in trade and other payables (39.4) (27.4)

- decrease in retirement benefit obligations (3.7) (6.2)

- (decrease)/increase in provisions (6.5) 0.8

Cash generated from operations 38.1 61.1

1. Including £59.3 million goodw ill impairment, £10.9 million asset impairments.

The change in working capital in trade and other payables in 2015 includes a working capital outflow of £18.0 million due to the exit of a large Procurement contract.

13 FINANCIAL COMMITMENTS AND CONTINGENT LIABILITIES

Leases

Rent costs and lease incentives are charged to the income statement on a straight-line basis over the lease term. At 31 December, future aggregate minimum lease payments under non-cancellable operating leases were as follows:

2015 2014

£m £m

Within one year 6.1 6.8

Later than one year but not more than five years 19.4 18.0

Later than five years 20.8 24.1

46.3 48.9

The Group’s most significant leases are those of the premises in Basildon, London, Chatham, Gurgaon, Hof, Melbourne, Milan, Folkstone, Chicago, Manesar, Chennai, Paris, Kuala Lumpar, Bangalore, Fulwood, Singapore and Sydney.

The lease expiry dates for the above locations are:

Basildon Oct-29

London Nov-28

Chatham Oct-24

Gurgaon A Mar-23

Gurgaon B Nov-22

Hof Dec-21

Melbourne Jun-21

Milan Apr-19

Folkestone Dec-18

Chicago Aug-18

Manesar Mar-18

Chennai Jan-18

Paris Aug-17

Kuala Lumpur Nov-16

Bangalore Aug-16

Fulwood Jun-16

Singapore Mar-161

Sydney Feb-161

1. Lease contracts are currently in negotiation for renew al.

Contingent liabilities

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.

Bank guarantees

The Group has provided £1.7 million (2014: £2.7 million) of bank guarantees in respect of non-

performance of its obligations under contracts entered into in the ordinary course of business

and leased property deposits. The guarantees are issued under separate guarantee facilities

of which £0.4 million (2014: £0.3 million) are collateralised with cash from the operating business for which they are issued.

Corporate guarantees

The Group has put in place guarantees covering contributions and deficit recovery payments

to two of its pension schemes as part of agreements reached with each scheme’s trustees. A

£30.0 million guarantee has been provided to the trustees of the Rebus pension scheme by

Xchanging plc. A guarantee provided by Xchanging Ins-Sure Holdings ltd to the LPC scheme

trustees decreases in line with deficit contributions paid to the scheme under the agreed

Schedule of Contributions. The value of the LPC scheme guarantee was £5.5 million as at 31

December 2015 (2014: £6.1 million).

14 PROVISIONS

Provisions are recognised when a present legal or constructive obligation exists as the result

of a past event, it is probable that this will result in an outflow of resources and the amount of which can be reliably estimated.

Onerous leases and contracts Restructuring

Litigation provision

Employee related

provisions Other Total

£m £m £m £m £m £m

At 1 January 2015 1.6 8.9 4.4 4.4 0.6 19.9

Charged/(credited) to the income statement:

- Provided in the year 3.0 4.6 - 1.1 0.4 9.1

- Released in the year - (0.5) - - - (0.5)

Used in the year (2.5) (7.4) (0.7) (1.1) (0.4) (12.1)

Exchange adjustments (0.1) (0.3) - - - (0.4)

At 31 December 2015 2.0 5.3 3.7 4.4 0.6 16.0

Provisions have been analysed between current and non-current as follows:

2015 2014

£m £m

Current 13.8 18.0

Non-current 2.2 1.9

16.0 19.9

Onerous leases and contracts

The ‘Split and Fix’ onerous contract provision was booked during the year and started to be used.

Restructuring

The additional provision noted above is attributable to the Procurement business from the

‘Split and Fix’. The £7.4 million used in the year was predominantly the 2014/2015 Group wide restructuring provision. The NSW provision was used in the year with a £0.4 million release.

Litigation provision

During the year, £0.7 million has been used in relation to the legal case mentioned above.

Employee-related provisions

The employee-related provision includes gratuity provisions (required by Indian law), long

service provisions (required in Australia) and compensated absences. Long service awards

and compensated absences are based on actuarial valuations, which are updated at each

reporting date. The gratuity provisions as well as the early and part-time retirement provision both have an element of uncertainty surrounding their amount and timing of utilisation.

15 ACQUISITIONS

Business combinations are accounted for using the acquisition accounting method, from the

date at which control passes to the Group. The consideration transferred for the acquisition of

a business is the fair value of the assets transferred, the liabilities incurred to the former owner

of the acquiree and the equity interests issued by the Group. The consideration transferred

includes the fair value of any asset or liability resulting from a contingent consideration

arrangement. Subsequent changes in the fair value of contingent consideration are

recognised in profit and loss for the year. Identifiable assets acquired and liabilities and

contingent liabilities assumed in a business combination are measured initially at their fair values at acquisition date.

(i) Spikes Cavell Analytic Limited

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 31

December 2015 contributed by Spikes Cavell was £1.5 million. Spikes Cavell also contributed

a statutory loss before tax of £6.0 million that includes a £4.6 million goodwill impairment

expense and £1.2 million of acquisition related expenses (AOP loss of £0.2 million) over the

same period. Had Spikes Cavell been consolidated from 1 January 2015, the consolidated

income statement for the year ended 31 December 2015 would show revenue of £1.6 million

and an AOP loss before tax of £0.5 million.

The final fair value of the assets and liabilities acquired are set out below:

Fair value

£m

Net liabilities acquired 0.2

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 4.0

- Deferred consideration 0.4

Total fair value of purchase consideration 4.4

Add: Fair value of net liabilities acquired 0.2

Goodwill 4.6

1. £4.0 million w as paid up front and £0.4 million w as deferred consideration.

Goodwill has been allocated to the Procurement sector CGU.

(ii) Acquisition-related expenses

The Group incurred the following acquisition-related expenses during the year:

2015 2014

£m £m

Legal fees - 1.7

Stamp duty - 0.4

Other professional and advisers’ fees 3.9 0.3

Businesses acquired from Agencyport integration costs 0.4 0.4

Businesses acquired from Agencyport Management Pay-out 1.1 0.5

Total Object deferred consideration 3.0 -

Spikes Cavell deferred consideration 1.2 -

Expensed as part of the total amount payable to the sellers of MM4 in

respect of the acquisition earn-out mechanism 3.0 2.7

Total acquisition-related expenses 12.6 6.0

Included within:

- Gross profit 8.7 3.8

- Administrative expenses 3.9 2.2

12.6 6.0

Acquisition related expenses include:

£3.0 million expensed as part of the total amount payable to the sellers of MM4 in respect of the acquisition earn-out mechanism recognised in gross profit.

£3.0 million expensed as part of the total amount payable to the sellers of Total Objects Limited in respect of the acquisition earn-out mechanism recognised in gross profit.

£1.2 million expensed as part of the total amount payable to the sellers of Spikes Cavell Analytic Limited in respect of the acquisition earn-out mechanism recognised in gross profit.

£3.9 million of professional and due diligence fees including fees relating to the takeover and acquisition fees (including abort fees).

£1.1 million of post-acquisition performance-related incentive costs and £0.4 million of post-acquisition integration costs relating to the acquisition of the businesses acquired from Agencyport.

16 EVENTS AFTER THE BALANCE SHEET DATE

Following a formal bid made on 9 December 2015, supported by Xchanging’s Board,

Computer Sciences Corporation (‘CSC’) announced on 18 January 2016 that they had

secured shareholder commitments in respect of, or direct ownership of, approximately 87.06%

of Xchanging’s existing issued share capital, and as a consequence declared their bid

unconditional as to shareholder acceptances. Subsequently, an announcement by CSC on 8

February 2016 confirmed this level had risen to approximately 91.78%.

On 15 February 2016 CSC announced that the US merger control condition set out in their

offer document has been satisfied. There are further regulatory conditions to be satisfied

before CSC’s bid can become wholly unconditional. The process of obtaining these is underway.